Equities

Whether it’s potentially avoiding emissions of CO2, manufacturing affordable drugs, or providing liters of drinking water, the companies Vontobel Fund II - Global Impact Equities invest in have made real-world impacts on our planet and society. Every year, we assess how our holdings have helped provide solutions to sustainability challenges.

Global Listed Infrastructure are often considered a defensive “all-weather” asset class, as long-dated contracts provide predictable cash flows and inflation protection. In 2022 Global Listed Infrastructure outperformed the broader global equity and fixed income markets, driven by improving company fundamentals. In this outlook, we explain why we are optimistic that listed infrastructure companies can outperform in 2023.

After a decade of underperformance, we believe emerging market equities are set for a brighter next chapter and any further short-term pain will be outweighed by the opportunity for longer-term gain. Here are three reasons why:

Structural themes underlie opportunities in the year ahead. Our Quality Growth portfolio managers expect stock performance will be more closely tied to earnings growth, the US consumer will remain healthy, select emerging markets are poised for continued growth, and certain Chinese stocks will benefit from a reopening.

Following a difficult and volatile 2022, there are sound reasons to believe that EM equities could deliver a strong rebound in 2023. Along with compelling relative valuations of EM equities, we identified three key cycles that have the potential to provide a positive boost to EM equities next year.

Biodiversity loss often takes a backseat to climate change in global headlines but ignoring the preservation of natural ecosystems poses a threat to water, land, marine life, health, and can increase poverty. There is an urgent need for change. The upcoming COP 15 will address biodiversity solutions that will benefit companies, investors, and society.

As the cycle of market excesses comes to an end, how can investors prepare? Tilt towards a portfolio of less-cyclical companies with pricing power and don’t mistake quality companies for those with an exciting story. The good news is that human ingenuity is not limited by the macro environment.

With Egypt’s Sharm el-Sheikh being the venue of this year’s United Nations Climate Change Conference (COP), it’s worth remembering that developing economies bear most of the negative effects of emissions mainly produced in industrialized nations. Therefore, the onus is on western companies to go “net zero carbon”, but how to measure their progress? One common yardstick for investors is the carbon footprint method – or the more encompassing “potential avoided emissions” method propagated by Vontobel’s impact investing team.

Now that the Russian utility’s gas deliveries have stopped, might this be the right time to call your solar and wind power company? Perhaps more than ever, renewables, and areas such as electric vehicles, batteries, or “green” hydrogen, are facing a bright future. Read our Clean Technology impact report for further details.

Feeding a starving person is important, we all agree on that. But from an investor’s point of view, allocating capital to companies working towards the same end is perhaps even more appropriate. But first, go find promising ones active in areas such as increasing land yields, reducing food waste, or preserving biodiversity, to name a few.

Our four gas scenarios all incorporate various degrees of Russian supply, but given the recent blasts in the Nord Stream pipeline system, the optimistic one can be neglected. Even so, Europe should be able to get through the winter. But significant political challenges lie ahead.

Price action on Monday has taken the implied equity risk premium to 10.7%, the highest since 2008. Foreign investors appear to have interpreted the composition of newly appointed Standing Committee in China as offering less likelihood of a change in policy direction on the government’s dynamic zero-Covid stance. However, the announced policies were in-line with expectations and there were no negative surprises.