Faced with increasing challenges, asset manager Carmignac, discusses the global outlook for the second half of 2022, focusing on the macroeconomic situation and investment strategy.
As concern about a global slowdown rises, and the US faces persistent core inflation, at a media event this week, European investment house Carmignac highlighted the investment opportunities that are emerging in Chinese markets.
Speaking at the event, Raphaël Gallardo, chief economist at Carmignac, warned that the Fed is facing persistent core inflation pressures due to a wage-price spiral in non-college educated labour, compounded by sticky housing inflation.
Since inflation expectations are driven by food and energy, the Fed policy is now hostage to global supply stocks and geopolitical risks, he added. “Wage inflation will continue and it’s going to damage corporate markets,” he said. He drew attention to the fact that the Fed needs to increase tightening monetary policy.
In the euro area, he believes there’s a stagflation risk, and that the level of tightening by the ECB is less important than in the US. He emphasised the need to address the risk of fiscal dominance and the problem of Italian debt, saying that fiscal adjustment will be needed.
Gallardo also pointed to opportunities in Chinese markets: “China will save itself from a hard landing, thanks to another infrastructure package in 2H22 but it will not help the rest of the world much," he said.
“China is leading the way and it is starting to recover,” he added. “It is more forward looking as it doesn’t have the inflation problem,” he explained.
But he stressed that the Chinese rebound will be lacklustre due to poor confidence in the private sector and slowing exports. “The government should be able to loosen the zero Covid policy in 2023 after an increase in the vaccination rate, but a bail-out/downsizing of the housing sector will still be required to restore consumer confidence and bank willingness to lend,” he stressed.
Kevin Thozet, a member of the firm’s investment committee, also drew attention to the investment opportunities in Chinese markets because the policy mix is developing in a favourable way.
He warned too of the rising inflation and increasing uncertainty and volatility on global markets, saying inflation needs to be addressed in order to move forward.
Carmignac is a French asset management firm, with $44 billion of assets under management.