Speaking in London on Wednesday, the private bank’s head of investment strategy said, the firm’s preferred equity overweight from a regional perspective is Japan. But, he added, there are a number of other, global equity investment themes that are attracting Societe Generale’s eye.
The first of these is the impact lower oil prices will have on global consumption.
“We continue to like consumer discretionary stocks,” he said, because the increase in purchasing power afforded by lower fuel prices is likely to result in strong profit growth in the first half of 2016 – especially if, as Soc Gen believes, the record low interest rates and continued QE within the Eurozone will likely mean that increased buying power will result in more consumption rather than more spending.
The second theme is a long term one that Mudie believes still has legs. He expects that long-term population dynamics will continue to drive global infrastructure spending. Pointing out that in Asia-Pacific, infrastructure spend is expected to account for $5.3trn per year by 2025, or 60% of the global total over the next decade, he said that China and India is likely to continue to dominate.
But, he added, developed markets are liable to continue to do their part.
The third theme in focus for 2016 is those companies that are best placed to survive the disruption brought to their business models by new entrants.
“Most of these new disruptive businesses, such as Airbnb, Uber, TaskRabbit and HourlyNerd, are in private hands or owned by private equity companies which makes it difficult to invest directly in them. As a result we are looking to invest in those companies which are likely to continue to grow their top-line sales and can continue to generate a high cash flow return on investment.”
The final two themes are less specific to a particular sector and more focused on the instruments themselves.
The first of these is convertible bonds, which Mudie says, are well placed in the current market.
“The timing seems right, as equities are expensive, and bonds are even more over-valued,” he explained.
“As converts enjoy better risk-adjusted performance than equities, they should prove valuable in 2016.”
The second is the opportunities available in the dividend futures market. According to Mudie, the summer selloff “didn’t spare dividend futures contracts” and, as a result they are currently particularly attractive, especially in the Eurozone.
