What do you make of the of the Turnaround and sentiment that we've seen Uh just in the last few hours and that Brutal sell-off yesterday what it tells Us about market dynamics and Particularly financial conditions Well i think what it's showing more than Anything else is that there's still a Great deal of uncertainty about the Near-term trajectory both of inflation And of growth and so we're seeing a lot Of volatility um understandably a big Drawdown every time Investors get worried about the uh risks To growth But of course we have seen quite a big Correction now and there are inevitably Times when you're going to get um some Of the uh setback uh rebounding again as We're seeing at the moment I think though that it is important to Emphasize that uh We have seen a huge absorption of a lot Of worrying things for investors now The Significant rise in inflation and Interest rate expectations bear in mind A year ago or so the expectation was There would be no rate rises this year In europe or the us secondly of course The war and thirdly growing concerns About growth so all of that really is Absorbed into the market already the Question is where do we go from here at
The margin Yes does that make this a buying Opportunity then peter if you describe It as absorbed already does that mean It's priced in those concerns around Higher interest rates around inflation Around the war and around growth if They're priced in does does this Represent a buying opportunity Well i think anna that really depends on Your time time horizon if you're taking A sort of six to 12 month view we would Say yes it is We do expect low returns across all Financial assets in the cycle given that We're not likely to see the tailwind of Lower interest rates but Equities are starting to look attractive For medium to longer term buyers first Of all we have negative real rates and Equities are a hedge against inflation They're making a claim on nominal gdp Over time and that's i think a positive Secondly We've seen a huge worry about inflation And it's risen sharply but we're getting Relatively close to the peak of year on Year inflation and that will start to Provide Some relief thirdly and you mentioned This early in your program earnings Actually have been very strong in the Last quarter much better than many People expected and that's been pretty
True across the u.s and europe so Earnings are holding up reasonably well And fourthly and importantly valuations Now have come down quite sharply Particularly outside of the u.s you know Europe is trading at around 11 and a Half or 12 times pe well below its long Run average that's true across asia and Em Uk's trading around 10 and a half times Earnings dividend yields are high Balance sheets are strong so there is Some support i think Okay so some examples of potential Support support out there let's stick With that six to 12 month time horizon Then peter where would that take you uh On on a sector by sector basis you Talked about the ability to hedge within Equities does it take you into Healthcare does it take you into Utilities energy or do you want to be More bold and look even to add Technology at this point Well we have been quite strongly in Favor of value sectors for some time now Believing that higher inflation Expectations and higher rates would Generally lead to a d rating of the Longest duration parts of the market Which got very expensive and provide Some relief for those Laggard areas from the previous cycle But i think it's increasingly the wrong
Way to look at the market As a sort of prism of the split between Growth and value we see that there's Value beginning to emerge across a range Of different sectors now And We would have a much more sort of Balanced and diversified Approach we do think that high energy Costs and high labor costs are going to Lead to more investment In Energy and labor efficiency and that Will benefit some technology companies But at the same time we believe you're Going to see more fiscal spending Particularly in europe more Incentive for companies to increase Capex after many years of Of a pullback in capex spending and that Should benefit a lot of industrial so i Would have a little bit of a balance Across these different types of factors
