Market Quote: Chip Stocks Fuel New Highs and Why Some EM Bonds Are Feeling the Pressure
Author: The editor's desk
June 19, 2024
A mid-week analysis of what’s happening in global financial markets from the perspective of AGF’s investment management team.
No Pain No Gain
Emerging market (EM) countries faced with poor or potentially deteriorating fiscal dynamics have highlighted how higher rates combined with years of budget deficits can eventually lead to much bigger problems down the road. In our view, many could fall into this category to varying degrees, and like a sick patient, the treatment required to bring the fiscal picture on side can be a painful one.
For some that pain might include an eventual default and subsequent restructuring which can be a long and drawn-out process given the many vested interests of a sovereign’s investor base. This was recently demonstrated in Zambia which took three plus years to get all the players on board under the G20’s common framework finally enabling them to emerge from restructuring.
Like many ailments, early detection and treatment is key, but unfortunately many are not willing to take the medicine and even those that do might be pressured by others to stop taking it. However, we believe those countries that can successfully implement their fiscal adjustment today will likely be the stronger ones of tomorrow.
Chip and Chase
The S&P 500 Index made another new high this week, led by the technology sector and a further surge in chip stocks. The average U.S. stock continues to lag, however, and fewer stocks are making new highs than during the broader index’s previous surge to new highs, further cementing the concentration risk of the U.S. market.
History suggests concentrated global markets are usually ones where returns are strong, so tailwinds for higher prices appear to still be intact. As we move into the slower summer months, investors may continue to focus on an improvement in global growth data and a further easing in interest rate policy around the world.
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Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. Our companies deliver excellence in investing in the public and private markets through three business lines: AGF Investments, AGF Capital Partners and AGF Private Wealth.
AGF brings a disciplined approach, focused on incorporating sound, responsible and sustainable corporate practices. The firm’s collective investment expertise, driven by its fundamental, quantitative and private investing capabilities, extends globally to a wide range of clients, from financial advisors and their clients to high-net worth and institutional investors including pension plans, corporate plans, sovereign wealth funds, endowments and foundations.
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