Understand emerging markets opportunities and the American Century advantage.
By Brent Puff - July 16, 2019
US stocks posted their best first half of a year in more than two decades. Yet as our investment team looks out over the rest of 2019 and into 2020, we believe it will be more difficult for markets to continue making big moves higher.
Growth around the world is under pressure in both developed and developing economies. This more modest pace of global economic activity is in turn slowing the pace of corporate profits. Moreover, the trade dispute between the US and China remains unresolved and is likely to continue to pressure business confidence, investment and ultimately future global economic activity.
Although the shift to greater monetary policy accommodation by the US Federal Reserve and other leading central banks around the world should help counter some of the headwinds derived from slower global growth, we believe the growth environment will remain challenging, particularly if the trade dispute persists.
In my latest video, I share our approach in this environment and examples of businesses we’ve identified with growth drivers relatively insulated from the macro headwinds.
If you just look at conditions in most major geographies in developed markets and within emerging markets, the trends are generally softer. It is a more challenging backdrop, for sure.
One of the positives in the first half of '19 has been the recovery in equity markets after the sharp sell-off in the fourth quarter. The extent to which markets have recovered from a pretty protracted sell-off has clearly been a positive. In terms of challenges, I think really the big challenge is—equity markets continue to wrestle with is—the reality of slower economic activity around the world and a slower pace of corporate profits. Both of those two factors are clear headwinds to equity returns.
Economic activity was slowing down before the tariff war sort of escalated. But there's no question that the escalation and trade tension between the United States and China is something that will further pressure go-forward growth rates.
From a high level, increased tariffs serve as effectively a tax on both corporate profits and consumers. And there're some ancillary impacts that are hard to measure exactly. But it's pretty clear that if you're operating a business today, and your business is being impacted by tariffs, making investment decisions, making hiring decisions are all impacted by the uncertainty created by the trade war. And I think that's an important impact, which is in the process of playing out.
With that said, in the environment we're in, which is one in which global economic activity is slowing and corporate profits—in general—are slowing down, our team is focused on trying to identify businesses where the growth drivers within those businesses are relatively idiosyncratic and insulated from the overall slowdown in growth.
And on that subject, one company we like is Boston Scientific. Boston Scientific is a diversified manufacturer of medical devices, probably best known for their portfolio of interventional cardiology products.
We like Boston Scientific because number one, we believe demand for their medical devices is relatively independent of the overall economic cycle. And number two, Boston Scientific is in the process of commercializing several new medical devices, which we think will provide a platform for accelerated organic growth in profits beginning in the second half of 2019, and into 2020.
Another name we like is Harris Corp. Harris Corp is a supplier of communication and electronic systems largely to the defense industry. We like Harris Corp because we believe their product portfolio is very well funded in the current budgetary environment. Effectively, they are gaining share of a department of defense dollars spent. Number two, they're in the process of acquiring a company called L3, which has a somewhat similar product portfolio. With L3, we think there is a material opportunity for Harris Corp's forward growth in revenues and earnings to improve as they extract material synergies from that transaction, and they run the L3 assets more efficiently than the prior management team.
In thinking about the second half of 2019 heading into 2020, I think the one thing we can say with a high degree of certainty is there is more uncertainty going forward. Growth is slowing down. The corporate profit cycle continues to lose steam, and the trade impacts of the trade war are still somewhat uncertain.
And I think in an environment like that, it's going to be really important to be a bottom-up company-specific oriented investor because the overall backdrop for companies is clearly going to be more challenging than it has been.
Get additional insights in our latest Investment Outlook.
Learn why we believe high-quality, dividend-paying U.S. companies may offer solid risk/reward potential.
There’s a lot of talk about ESG investing. However, few managers have focused on emerging markets—and that’s where we see a lot of potential.
Trade war aside, Sr. Portfolio Manager Patricia Ribeiro is still finding opportunities to invest in China. Find out how in her latest quarterly update.
Market expectations are low coming out of 2018. Sr. Portfolio Manager Brent Puff explains the potential implications for global growth markets in 2019.
January 10, 2019
Economic activity around the world is softening, which Sr. Portfolio Manager Brent Puff believes could make finding future growth more challenging.
Despite the first quarter market rally, Global & Non-U.S. Equity Portfolio Manager Brent Puff notes slowing global growth. What’s that mean? The pace of corporate profits is under pressure, which means a more difficult backdrop for equities.
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References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
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