Post-COVID factors meriting investor consideration
Inventory levels, housing, petrol prices and high cash balances are the post-COVID economic factors that Brandywine Global say merit investor consideration.
Jack McIntyre, Brandywine Global portfolio manager, said when we start to see less uncertainty, investment in inventory could be a source of additional growth.
“Over the last couple of years, we’ve seen an overall decline in the growth rate of inventories. Last year it was about uncertainty over US-China trade,” McIntyre said.
“This year, it's about uncertainty over how the pandemic is going to play out. Given that level of uncertainty, nobody is eager to build out a huge amount of capital and inventory right now.
“This is a global phenomenon – we're seeing low inventories across the board. We see it, for example, in the recent figures for US as well as Chinese auto inventories.”
Another potentially external positive influence was housing, which was a huge driver of the US domestic economy.
“We look at the combination of the year-over-year change in mortgage rates and the year-over-year change in unleaded gasoline prices,” McIntyre said.
“These two key variables clearly influence economic behaviour in the US in the case of gasoline, it influences consumption. In the case of mortgage rates, it influences housing.
“Right now, we've seen significant declines in both gasoline prices and in mortgage rates. So far, the shift in mortgage rates has had a bigger impact. They have come down significantly, and housing is really starting to see signs of recovery and is back to punching above its weight.”
McIntyre said there re high cash balances across all aspects of the economy around the globe, reflecting high levels of uncertainty.
“We expect that as we see uncertainty diminish, some of this cash will be put to work – a net positive for the underlying economy and also for markets,” McIntyre said.
“Not surprisingly, fund managers appear to be holding more cash as well. It’s important to note that there’s nobody on this planet who has been managing money in the kind of pandemic environment that we're experiencing now.
“Still, the fiscal and monetary response has chipped away at the uncertainty, and I think that that's sort of winning the war right now, and should be the catalyst to get some of this cash to be put to work.”
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