Market Quote: Red Sea Crisis, Japan’s Reforms, Europe’s Conference Season
Author: The editor's desk
January 19, 2024
Members of AGF’s Investment Management Team weigh in on the week that was in global financial markets.
Seeing Red
Houthi attacks on cargo ships in the Red Sea are resulting in shipping delays that are poised to disrupt supply chains for several months. The longer these disruptions persist, the more significant the repercussions on costs and margins for companies could be, while potentially serving as yet another catalyst for the trend of nearshoring.
Rallying Like It’s 1990
Japan’s Nikkei 225 Index continues to rally higher after climbing above 34,000 earlier this month for the first time since March 1990. The country’s stock market has been one of the best performing of any in the world over the past year and could benefit further if Japan’s economy continues to emerge from three decades of stagnation and corporate reforms to rectify decades of inattention to shareholder returns continue.
In fact, to that end, the Tokyo Stock Exchange released earlier this week its first monthly list of companies that have disclosed plans to maximize their capital management and enhance investor returns.
Wall of Worry
It is conference season in Europe with investors flocking to meet companies and size up their prospects for the year ahead. In terms of guidance, in general, corporations are non-committal, which is understandable given the high level of uncertainty resulting from, among other things, the ongoing war in Ukraine, weak economic growth, labour inflation and upcoming elections around the world.
Still, those concerns are not much more to worry about than what investors in Europe faced this time last year. Indeed, the MSCI Europe Index rallied 20.6% (in U.S. dollars) in 2023 despite the energy crisis – as well as rising interest rates and rampant inflation – being potential drags on performance.
So, yes, it is a tough environment overall, but valuations remain generally attractive in Europe and near historic lows relative to U.S. equities. This could potentially bode well for many European stocks, especially those with strong balance sheets and solid cash flow generation.
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