The latest manufacturing data out of China, which showed a contraction, was enough to take global equity markets down Friday, said Mark Eibel, Director of Client Investment Strategies at Russell Investments. The US earnings season has been pretty mixed and even a strong manufacturing reading out of Europe was not good enough to change the downbeat tone for the day, he noted.
Asked to comment on the January 31 deadline in China about Trust wealth products that could possibly lead to default and trigger a stock-market correction this quarter, Mark said he doesn’t think one data point out of China is enough for such a reaction.
All these days, global attention was focused on the US – the debt ceiling, federal budget negotiations and the Federal Reserve policies. However, the trigger point will not come from the US and it’s more likely to come from outside.
Since Europe is showing signs of improvement, markets automatically are likely to turn their focus on China. Hence, when words like “default” are associated with China, which the world is not used to hearing, things become particularly difficult. US markets have been waiting for a 10 percent correction for a long time, for more than 700 days to be precise. The US economy is unlikely to throw up any major surprise this year and it most probably will come from China, he observed.
Asked to comment on his investment strategy, Mark said he likes equities over fixed-income since yields are likely to rise slowly throughout the year. From a fundamental stand-point, the US is the best story although equity valuations look a little stretched for now. Emerging markets look attractive though their fundamentals may not look that good.
Nevertheless, it may not take too much good news for markets to realize that about once a decade the emerging markets go on “sale” and it’s usually a pretty good time to pick them up. So for equities, he prefers stocks from broadly across the world in a multi-asset framework with a focus on emerging markets.
Within markets, Russell Investment has been overweight on the US healthcare sector and that is one sector where the earnings have delivered. Also, Russell has been overweight in some of the cyclical sectors like financials and energy. It has been underweight in some of the defensive areas that have done very well over the last few years; namely consumer staples and utilities, he concluded.
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