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Global equities: Five lessons from Europe that investors can take into 2022

What can investors learn from 2021 as we look ahead into next year? Here are five lessons from a European perspective courtesy of UK-based senior fund manager PAUL WILD

THE past two years have been more tumultuous than most others in recent decades.

But with a greater ability of businesses and citizens to live and work with Covid, what are the lessons from 2021 to take into 2022?

Paul Wild, senior fund manager with Pendal Group’s UK-based asset manager JO Hambro Capital Management, provides five lessons from a European perspective:

1. The importance of earnings momentum

If you look at Europe, there’s been earnings upgrades of 27 per cent year to date, and clearly there’s a very high correlation between earnings upgrades and performance.

At the sector level this year, the best performers have been technology and banks, and there’s no surprise that’s where much of the earnings momentum has been.

Looking at 2022, you need to focus on areas of the market which still have earnings upside. In Europe I’d pinpoint banks again this year and automobile stocks.

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2. Monetary policy matters

Monetary policymatters for market direction, sector performance and degrees of volatility. With bond buying to be wound down and US interest rate rises expected by the middle of next year, the decade-long bull market in growth stocks is set to be challenged. Equity valuations will start to really matter again.

3. The green agenda matters

Europe, in particular, is serious about the green agenda. At the UN’s COP26 Climate Change Summit in Glasgow in November, Europe showed leadership and there’s now a huge regional focus on levels of decarbonisation. Investors need to consider the green agenda.

Find out about Pendal Concentrated Global Share Fund

4. The importance of digitalisation

We know the pandemic had a phenomenal impact on expediting business model change, driven by the shift to the cloud and computerisation generally. The flexibility afforded from cloud computing is enormous and companies that embrace technology will continue to reap benefits in coming years.

5. Supply chains and logistics have changed forever

One of the big themes running through 2021 revolved around transportation and supply chain shortages. In 2022 companies will react to that thematic and there will be de-globalisation. This is likely to be a permanent impact of the pandemic, particularly in manufacturing.

Companies will shift away from just-in-time manufacturing to just-in-case inventories. Management will bring supply chains closer to themselves. That will impact earnings and performance.

About Paul Wild and Pendal global equities strategies

Paul Wild is senior fund manager with J O Hambro Capital Management, a London-based active investment manager which is part of Pendal Group.

Paul manages J O Hambro’s Continental European fund.

Pendal offers a range of global equities strategies to Australian investors including:

Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

Contact a Pendal key account manager here

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at December 14, 2021. PFSL is the responsible entity and issuer of units in the Pendal Concentrated Global Share Fund (ARSN: 613 608 085) and Pendal Global Select Fund (ARSN: 651 789 678). A product disclosure statement (PDS) is available for each fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the funds is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 from 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

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