Keith Ney of Carmignac has said stock markets are still in a favourable climate. China remains an interesting country in which to invest, both for equities and bonds.
Ney joined the Strategic Investment Committee of Carmignac in April 2021. He has developed particular expertise in bonds and their place in a portfolio. His long career with the French manager has given him expertise in both equities and bonds. In addition to his role on the committee, he is direct co-manager of the Carmignac Patrimoine Europe fund.
Health crisis
We had the opportunity to talk to him on his first visit to Brussels since the outbreak of the health crisis in order to gain an insight into Carmignac Patrimoine’s positioning for the coming months. After several difficult years, Carmignac’s flagship fund is back on track. Indeed, in 2021, the fund is up 3%, and this after two years (2019 and 2020) in which it rose by more than 10%.
“The performance of the main economic regions has been very mixed. China has taken a particularly conservative position, while the United States has shown itself to be very bold in monetary and budgetary terms. They are even close to economic overheating today. At the same time, the recovery in Europe is more hesitant. This is because the vaccination campaign has been rather slow in getting started and there have been less aggressive support measures than in the United States.”
Risk
In terms of monetary policy, Keith Ney emphasises that the market seems to have confidence in the Federal Reserve, which seems to be handling inflationary pressures well. The European Central Bank, on the other hand, has arguments not to tighten its monetary policy too quickly. “Jerome Powell has managed to keep the expected rise in interest rates very limited. Therefore, this remains a favourable environment for risky assets.”
In the longer term, however, there is a risk that this inflationary pressure will become structural in various segments, according to Ney. For example, several restrictions have been lifted, leading to a sharp rise in US rents over the past 12 months. “A faster-than-expected rise in inflation in the US is the main risk factor for the markets, as it will force central banks to intervene more quickly.”
Growth stocks
Looking at the strategy of the multi-asset portfolios at Carmignac, Keith Ney stressed that cyclical exposure is currently being reduced. Indeed, positions are again being taken in secular growth companies in sectors such as consumption and technology, which are benefiting from the digitisation of the economy.
“Growth stocks should normally start to outperform again soon”. He also noted that the argument that these stocks are highly valued is not immediately valid.
“In an environment where growth is rare, these stocks will most likely remain expensive, possibly even become more so.”
“Therefore, the equity portfolio will continue to drive performance in the coming months.” He also stressed that it is not correct to view Europe as an unattractive region. “After all, the continent has several attractive companies operating in numerous high-tech sectors such as green energy or biotechnology,” said Ney.
Chinese axis
Within Carmignac Patrimoine, the equity strategy is also focused on Chinese equities, which represent 7% of assets under management. “They have been hit in recent months by the uncertainty surrounding the new regulations.”
However, we remain convinced that they will perform well in the future.
Keith Ney also noted that some Chinese companies are starting to buy back their own shares because of their low valuation, “which is particularly rare in Chinese stocks and for high-growth technology companies”.
Positioning on bond markets is more likely to focus on Italian government bonds, where spreads may yet widen. “We expect positive effects from Mario Draghi’s reforms,” said Ney.
Carmignac Patrimoine is also invested in Chinese bonds. The central bank will cut interest rates in the coming months.