In the most recent Bank of America Global Fund Manager Survey (October 2024), managers were asked what they considered the biggest “tail risk.” Their answer: geopolitical conflict. So, if you’ve been thinking about geopolitical risks and their potential effect on portfolios, you are certainly not alone.

Many Americans will be tuning in to tonight’s first presidential debate not just for the entertainment but to gauge what policies the candidates lay out and how they could affect their portfolios. But the truth is that nearly half the world’s population will face national elections this year, with several already concluded. It’s important to keep in mind that these elections will impact those portfolios with significant international exposure and those with U.S. exposure. 

With nearly half the world’s population set to face national elections this year, including here in the U.S., it’s a time of questioning for many. People want to know who their next leader will be, how changing policies may affect them, what the economic implications will be, and what place their country or region will have in the world.

Almost two years ago exactly, I wrote the piece “Global Inflation Outlook: Are Lower Numbers on the Horizon?” Global inflation peaked at 14.3 percent that same month (April 2022). Initially, inflation sharply came off this top, hitting a low of 2.1 percent in May 2023. But more recently, we saw prints above 5 percent globally on a headline basis before returning to the 3 percent range by year-end.

Emerging markets may not always be top of mind when building portfolios, but their importance to global growth should not be ignored. In the International Monetary Fund (IMF) October Global Forecast, the IMF noted that advanced economies’ contribution has slowed from a peak of 38 percent of global economic growth in 2006 to an expected 15 percent in 2023. Over the same time frame, emerging and middle-income economies have risen from 58 percent of global growth to an expected 78 percent of global growth in 2023. 

Inflation has grabbed headlines for the better part of a year now, as the Covid-19 response led to increased demand and supply constraints. That said, short-term inflation expectations have changed dramatically in recent months. In April 2021, inflation expectations for 2022 remained relatively subdued, with the International Monetary Fund (IMF) calling for 1.6 percent consumer price inflation in 2021 and 1.7 percent in 2022 for advanced economies. In October 2021, these numbers had moved up to 2.8 percent and 2.3 percent, respectively. Since then, inflation in the U.S., euro area, and other advanced economies has continued to pick up, with the IMF’s most recent report from this month showing inflation for advanced economies at 5.7 percent in 2022 and 2.5 percent in 2023.

What has led to changes in this global inflation outlook? And what conditions are contributing to the IMF’s lowered inflation expectations going into 2023 and beyond?

In 2021, we have seen our fair share of requests from advisors and their clients to remove or reduce the exposure to China in their portfolios. This has happened for several reasons. In a previous post, I discussed both the strong foreign direct investment into China in 2020 and the stark contrast between the country and the rest of the world in 2020 nine months into the pandemic. Nearly a year later, we have seen the Chinese government take swift actions around foreign direct investment, including the planned delisting of Chinese ride-hailing company, Didi, from U.S. exchanges; fines on technology firms; and questions around the future of U.S. foreign direct investment.

Today’s post is from Peter Roberto, investment research analyst on our Investment Management and Research team.

Today’s post is from Peter Roberto, investment research analyst on our Investment Management and Research team.

Brad here. Today's post on the growing disparity we're seeing between growth and value stocks is brought to you by Peter Roberto, an investment research analyst on Commonwealth’s Investment Management and Research team. Take it away, Peter.