Well-th Blog

Global Expansion 

By Hightower Advisors / May 1, 2024

Global Growth Expectations Rise 

The Covid-19 pandemic virtually shut down the world economy for an entire year. Trade halted, supply chains became disrupted and GDP contracted at one of the fastest speeds on record. Second quarter GDP declined anywhere from 5-30% y/y in the quarter, and global GDP in 2020 fell 3.4% (over a $2 trillion decline in economic output).1 Following trillions of dollars in stimulus, markets and economies quickly rebounded and have not looked back. The U.S economy grew 5.8% in 2021, 1.9% in 2022 and 2.5% in 2023.2 

This trend is not expected to slow in 2024. The International Monetary Fund (IMF) revised its global growth forecast higher in April to 3.2%, up 0.1% from the previous forecast. The group states that the global economy is heading for a “soft landing,” with the IMF’s Chief Economist Pierre-Olivier Gourinchas stating, “the global economy remains remarkably resilient, with steady growth and inflation slowing almost as quickly as it rose.”3 

Chart 1: Global Median Inflation Levels Are Trending Down to 2%4 

The IMF expects median headline inflation to decline from 2.8% at the end of 2024 to 2.4% by the end of 2025. As inflation continues to decline, the possibility of less strict monetary policy rises. Declining global interest rates will help bolster economic activity and push growth higher.  

U.S. Growth Leads Developed Economies 

The U.S. is projected to be the top growing advanced economy in 2024 at 2.7%, according to the IMF. Economic activity has remained elevated with strong job growth, high consumer spending and wage growth. However, Q1 GDP spooked investors, coming in below expectations at 1.6% annualized – the final Atlanta Fed GDPNow estimate was for 2.7% annualized growth. Within the report, core personal consumption expenditure (PCE) prices rose at an annualized rate of 3.7%, above Q4 core PCE growth of 1.8%.  

The fear of stagflation, high inflation with low growth, was reduced following the March PCE reading coming in-line with expectations. We continue to believe inflation will remain controlled and at much lower levels than in the past two years. Quarterly PCE and core PCE are both still on a downward trend year-over-year. Inflation remains above the 30-year average, reflecting the above-average economic growth and impacts of easy stimulus policy. 

Chart 2: Inflation Slightly Above-Trend, Along With Real GDP Growth5 

We anticipate the growth to continue and are hearing the same sentiment from companies. Earnings calls have been very optimistic this quarter. Morgan Stanley (MS) and Goldman Sachs (GS) discussed returning M&A activity, Genuine Parts (GPC) is buying back brick-and-mortar stores amid strong consumer demand and D.R. Horton (DHI) reported a jump in the percentage of first-time home buyers.  

The IMF also raised its forecast for expected U.S. GDP growth in 2024 from 2.1% in January to 2.7% in April. Employment growth and high productivity this year are some rationales for the increased projection. Also, the U.S. economy has passed its pre-pandemic growth trend, according to the IMF. Growth is expected to continue, with the Atlanta Fed projecting 3.9% annualized growth in the second quarter. 

China Data Points to a Hopeful Turnaround

China’s struggle to boost productivity following Covid restrictions may be turning over. The country’s first-quarter GDP growth beat expectations, growing 5.3% y/y. Export volume rose 14% y/y in the first three months, a good sign of continued growth as it is one of the country’s main drivers of expansion. Furthermore, manufacturing activity expanded in March for the first time in six months with its manufacturing PMI coming in at 50.8, signaling expansion.  

China’s goal is 5% GDP growth in 2024. As part of its plan to achieve this, the country issued special bonds earlier this year to assist in funding the efforts. The raised capital is expected to fund projects regarding “major national strategies and building security capacity in key areas.”6 Recently, Goldman Sachs (GS) and Morgan Stanley (MS) both raised their respective outlooks for China in 2024. GS bumped its GDP projection to 5% from 4.8%, and MS improved its forecast to 4.8% from 4.2%. Export growth was highlighted as a key area and performed well in the first quarter. The IMF is projecting China’s GDP to grow 4.6% in 2024 and 4.1% in 2025. 

China was a bright spot for markets in April. The MSCI China ETF was up over 7% while many other global ETFs ended the month negative. A possible bottoming of economic activity has helped the depressed investments turnaround and outperform in the month.  

Chart 3: China ETF Stands as a Winner in April7

India Sees No Signs of Slowing Growth 

Earlier this year, IMF Executive Director Krishnamurthy Subramanian said he believes India is easily the fastest growing economy in the world, and data greatly supports this thesis. We heard this same sentiment from Mohamed El-Erian in our offices recently. April’s Purchasing Managers’ Index (PMI) for the country was reported at 62.2, the highest output in 14 years. This marks 32 consecutive months of an expanding manufacturing sector in India. To find a month with a PMI reading below 50 (indicating contraction in activity), you must look all the way back to August 2021. 

India stands as the highest, and fastest, growing economy in the world. In 2023, the economy grew 7.8%, and it is expected to grow at 6.8% in 2024 and 6.5% in 2025. The country has been increasing investments into public and private infrastructure and has tripled its investment allocation to infrastructure relative to five years ago.8 Nomura believes it is possible for India to beat the IMF’s GDP estimates and projects that the economy could grow by an average of 7% over the next five years. 

Foreign direct investment (FDI) in India has now outpaced FDI in China. In the first six months of India’s 2023 fiscal year, the country’s net FDI was $31 billion, nearly as much as China’s total 2023 FDI of $33 billion. China’s FDI in 2023 fell 80% y/y and is now less than 10% of its peak of $344 billion in 2021. FDI in India is shaping up to appear similar to China in the late 2000’s and early 2010’s, when FDI jumped from $100 billion to $250 billion in five years. 

Charts 4 and 5: FDI Growth in India9 Looks to Overtake China10 

We see investment in companies with exposure to India as a solid opportunity going forward. The country boasts the fastest growing economy in the world and is taking manufacturing and export market share from China. In emerging markets ETFs, India is increasingly becoming a larger allocation due to its continued growth. India now makes up 18% of the MSCI Emerging Markets ETF (EEM), and China holds a 27% share, down from over 40% a few years ago. 

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Sources

  1. Statista. As of January 10, 2024.
  2. BEA. As of February 28, 2024.
  3. CNBC. As of April 16, 2024.
  4. IMF. As of April 16, 2024.
  5. FactSet (chart). As of April 30, 2024.
  6. Bloomberg. As of March 4, 2024.
  7. FactSet (Chart). As of April 29, 2024.
  8. Bloomberg. As of April 14, 2024.
  9. S&P Global. As of December 8, 2023.
  10. Nikkei Asia. As of February 19, 2024.

Disclosures 

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors. All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice. This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates. 

Hightower Advisors is registered with Hightower Securities, LLC, member FINRA and SIPC, and with Hightower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities, LLC; advisory services are offered through Hightower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and HighTower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of Hightower Advisors, LLC, or any of its affiliates.