07-10-2021 · Quarterly outlook

A more cautious stance on equities

As the end of the year approaches, investors are entering a traditionally auspicious season for equities. This time, though, we believe there is reason to be more cautious. For now, this does mainly have an impact on our near-term outlook for emerging markets.

    Authors

  • Arnout van Rijn - Portfolio Manager

    Arnout van Rijn

    Portfolio Manager

  • Wim-Hein Pals - Head of Emerging Markets team

    Wim-Hein Pals

    Head of Emerging Markets team

  • Michiel Plakman - Lead Portfolio Manager

    Michiel Plakman

    Lead Portfolio Manager

A more cautious stance on equities

Indeed, emerging markets have historically been more sensitive to tighter US monetary policy, and the US Federal Reserve (Fed) has expressed its intention to start tapering its USD 120 billion monthly purchases from November this year, probably by USD 15 billion a month. This means that, although markets remain firmly supported through the generous provision of liquidity, it is inevitable that the huge pool of policy support will shrink.

Also, we believe that the other engine that has driven stocks to all-time highs – namely, earnings – may well sputter in the fourth quarter. Input price pressure is hitting both industrial and consumer companies’ profit margins. This is illustrated by the gap between producer price indices (PPIs), which reflect input prices, and consumer price indices (CPIs), which reflect output prices.

Meanwhile, the strong upward revisions to earnings forecasts seen over the past year seem bound to gradually fade. The upward momentum in earnings-outlook revisions has continued to be strong across the world, with only two downgrades for every three upgrades. We haven’t seen such numbers since 2004. However, our view is that this trend is unlikely to be sustained, as we see slower economic growth and margin pressure ahead.

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This information is for informational purposes only and should not be construed as an offer to sell or an invitation to buy any securities or products, nor as investment advice or recommendation. The contents of this document have not been reviewed by the Monetary Authority of Singapore (“MAS”). Robeco Singapore Private Limited holds a capital markets services license for fund management issued by the MAS and is subject to certain clientele restrictions under such license. An investment will involve a high degree of risk, and you should consider carefully whether an investment is suitable for you.