The first five years of the current decade have been favourable for investors despite the Covid-19 induced global lockdowns, wars in Eastern Europe and the Middle East and elevated interest rates and inflation. According investment firm UBS, global equity markets are up 50 per cent, nominal GDP has increased by over a third and US corporate profits have nearly doubled since 2020. But what does the second half of the decade hold for market? CNBC Africa is joined by Michael Bolliger, Chief Investment Officer: Emerging Markets, UBS Global Wealth Management for this discussion.
We're going to move on and just reflect on what has happened across markets in the first five years of the current decade. Because the first five years have been pretty favourable for investors and that's despite the Covid-19 induced lockdowns, despite wars in Eastern Europe and the Middle East and even despite the elevated interest rates environment as well as inflation. According to investment firm UBS, global equity markets are up 50 per cent, nominal GDP has increased by over a third and US corporate profits have nearly doubled since 2020. So that's what happened in the last five years. But what is the second half of the decade hold for markets? That's what we're going to have right now in terms of conversation. Michael Bolliger, CIO at Emerging Markets, UBS Global Wealth Management joining me for that conversation. Michael, thanks so much for your time. I mean, with my previous guests here in South Africa, we were reflecting on Trump and I suppose that's what I want to begin with with you as well. Just given that Trump is going to be quite central for the next five years of this current decade when he does assume his presidency in January, you have written about some of the potential economic consequences thereof and the implications for trade and inflation. Square that for us in terms of what that could potentially then mean for the situation as it does pertain to geopolitical tensions, as it does pertain to global trade and how investors should be thinking about navigating this complex. Yes, yes, he is very much top of mind these days. I mean, last time I checked, the terms are only four years, not five. But yes, pretty much for the rest of this decade, he will perhaps keep us busy. We expect quite a bit of noise, quite a bit of nervousness as well. We've seen that in the market. And you mentioned the key things, it's tariffs, it's trade restrictions, it's perhaps also a pickup in inflation. But also at the same time, we should not lose track of the relatively benign economic backdrop that we have currently with U.S. corporate earnings holding up quite well with central banks easing left, right, center, including in South Africa. With also the Trump administration indicating that they're very much inclined to cut corporate taxes and perhaps even private taxes for private individuals. So in terms of investments, we keep pretty much with constance through an overweight in global equities. And at the same time, we add defensive positions to our portfolios, like, for example, gold, hybrid bonds, alternatives as well, which can do well in a volatile environment. Gold has been the talk of the town, seriously, this week. I mean, if we look at the performance that it has put forward, and do you reckon that in this current environment, it has legs to run further? And how much further, in your view, if we chart a medium term map? Yes, I think very much so. We have a very constructive view, medium term. Obviously, we know that there's been a lot of positioning throughout the course of 2024, and especially also into this election. And so when people realized the Trump victory, when they were confronted with the fact that it was quite a bit of profit taking, not only in gold, but also in other markets. And so naturally, there was a bit of a retracement, but our medium term outlook sees gold at around 2900. So that's very, very constructive. And I think even if you think about long, longer term with some of the lingering inflation concerns, you mentioned that in the beginning, there is of course scenarios where we see some of the Trump policy initiatives that may come resulting in somewhat higher structural inflation, then of course, the yellow metal could help as an inflation hedge as well, which for at least the people we talked to, seems to have quite a bit of appeal. Sure. Michael, you did mention South Africa in your opening comments, and your team in helping us reach you and establish this interview did make us know that during your virtual briefing with investors, South Africa was mentioned, and what was mentioned is that South Africa is currently looking interesting right now. Unpack that for us and ultimately, what that means for the investment opportunity here. Yes, absolutely. So within the context of the emerging market equity strategy at UBS, we currently hold an overweight allocation to South African stocks. The reason here is free fold. First of all, you know, we do believe the country has a reform outlook that looks interesting to us. We've seen similar attempts in the past, and they were not only successful. If I may put it that way, but with the new government and the new coalition government in place, we do believe, or we're happy to take an assumption that, you know, this time, perhaps there is more upside, more success on the reforms, which, you know, would then pave the way for markets to increasingly recognize, and this is, you know, in combination with very attractive valuations that we see in South African stocks and situation that we don't really find in many other places, right? I mean, many countries, including, of course, the U.S. stocks trade above their longer term averages, and so South Africa there is a bit of an interesting exception. And then last but not least, you know, the SARB is easing, international central banks are easing, and perhaps you can argue, you know, the easing path is no longer as smooth as we thought it might be as recently as one or two months ago, but it's still the outlook for, say, the SARB to deliver at least two more 25 basis points cuts is intact. I think the Fed will do more, the ECB, etc., will do more. So in this environment, we know from the past, typically, you know, eventually dollar strength will start to peter out, will come to an end, and risk asset, including, of course, emerging market assets, should do well, and that should all else equal also benefit South African stocks. All right. We can't speak about the EM space, I suppose, without mentioning China, and, you know, they are doing everything that they can right now, or everything they believe they have or are able to do right now to show up the economy. Investors are saying that a lot more can be done. I suppose that remains to be seen. Your view on China and how it potentially performs or gets out this quagmire in the second half of the current decade? Yeah, I think there's a lot of, perhaps, confusion, if I may use that word, around, you know, whether China really wants to, you know, beef up the economy or whether it rather wants to stabilize it. In our view, it's much rather the latter. You know, there is a, you know, a certain growth objective that they've stated. They do that, you know, year after year, essentially. That number currently is perhaps somewhere below five. It will be lower for 2025, and it will be even lower, perhaps, for 2026. And so what we see the Chinese government doing these days is attempts to, on the one hand, stabilize growth and, importantly, to achieve that, stabilize the real estate market. And at the same time, we're seeing them being very conscious and responsible as well in their efforts not to reinflate the debt situation, not to reinflate possible real estate bubbles. So it's really a balanced approach they're taking with the attempt to stabilize growth. At the same time, there is efforts for them to, you know, further champion certain industries. I mean, they've had a huge success story, for example, in renewable. They're very, very strong in EVs and electric cars, electric vehicles. There's many more areas where China has become the number one global hub for manufacturing of advanced technological goods. And I see them very much continuing on that journey. And that will ultimately lead to a situation where China can do quite well over the next five years. It's just perhaps sometimes the market is a bit too overambitious or, you know, too eager to see them doing very big, forceful policy actions that I think ultimately will create a lot of volatility, but perhaps not even contribute that much to the longer-term goal that the Chinese leader should pass. All right. So my team have drawn my attention to your five Ds that you reckon will also dominate markets in the next decade. Of course, we're talking about debt, deglobalization, demographics, decarbonization and digitalization. Of these factors, which do you reckon will have the most significant impact on markets over the medium term? And how are you as UBS positioning for that opportunity? Yes. I mean, this is a super important topic. Specifically, you know, we watch the markets and often we see them, you know, almost like running around from one topic to the other within days, within weeks. And then, you know, sometimes there's a risk that people lose, you know, the bigger picture. And having an eye on these longer-term trends is super, super crucial, you know, for us to be as successful as investors. And so when you say which one is perhaps the most important, it's hard to say. I mean, if you look at the world from a sort of debt-fixed income point of view, of course, you worry a lot about debt sustainability. And, you know, we've all seen the numbers, you know, the debt-to-GDP ratios in Western Europe, in the US, Japan, of course, going through the roof. And there seems to be no end in sight now with the Trump administration. There's a lot of spending ahead. And so fixed-income investors worry about that. So from a fixed-income point of view, I think finding places where, you know, you can be comfortable about, you know, the longer-term ability of an entity, of an issuer to repay, that is super, super crucial. Also, of course, to the extent that too much government spending is going to, you know, crowd out private sector initiatives and make capital more expensive, and hence weigh your longer-term equity returns. And then perhaps if you look at this from a pure growth equity, long-only point of view, you do obviously want to focus on digitalization quite a bit. We're very bullish medium to longer term on, for example, artificial intelligence. Currently, you know, our focus is on companies that, you know, enable technologies to make this happen in the first place. But increasingly, the focus is going to shift to those that can apply AI successfully. And so this is going to be a huge trade, we believe, for the next few years, to see companies using AIs to do cost-cutting, to, you know, enhance efficiency, even to come up with innovation. If you think, for example, about the medical industry, there's a huge potential there as well. And that obviously, for us, looks very, very interesting from, say, an equity point of view. All right. Michael, we'll have to leave it there. But thanks so much for giving us that broad view on where markets could be headed in the next five years. Michael Bollinger, CIO for Emerging Markets at UBS Global Wealth Management.
Theme: Outlook for the Second Half of the Decade in Global Markets
The first five years of the current decade have seen significant growth and favorable conditions for investors despite challenges such as Covid-19 induced lockdowns, wars in Eastern Europe and the Middle East, and elevated interest rates and inflation. According to UBS, global equity markets have surged by 50%, nominal GDP has risen by over a third, and US corporate profits have almost doubled since 2020. With the next five years on the horizon, investors are looking towards what the future holds for the market. CNBC Africa recently sat down with Michael Bolliger, Chief Investment Officer for Emerging Markets at UBS Global Wealth Management, to discuss the outlook for the second half of the decade. The discussion covered a wide range of topics, from the potential economic consequences of Trump's presidency to investment opportunities in emerging markets like South Africa. Bolliger also shared insights into the performance of gold, China's economic strategy, and the five key factors that will shape markets in the coming years. As investors brace for potential shifts and volatility in the market, UBS remains focused on maintaining a balanced investment strategy that accounts for both opportunities and risks.
"When you say which one is perhaps the most important, it's hard to say. Having an eye on these longer-term trends is super, super crucial for us to be as successful as investors."
['UBS Global Wealth Management', 'investment outlook', 'global markets', 'economic consequences', 'emerging markets', 'investment opportunities']