Forecasts for equities ‘overly-pessimistic’

Oksana Patron

1 August 2023

Insync Funds Management has reiterated its view from last year that forecasts for equities were overly-pessimistic as analysts and commentators were too focused on macroeconomic factors which are “hard to consistently get right”.

Instead, more attention should be paid to earnings growth that drives stock prices long term, Insync chief investment officer, Monik Kotecha, said.

According to him, those with a ‘top down’ focus would likely have been very defensive and missed the +20% returns available from October’s 2022 lows due to the negative commentary.

“A top down focus overlooked the fact that while share prices broadly fell over most of last year, earnings of highly profitable businesses benefitting from secular megatrends, continued to grow in the double digits,” Kotecha said.

“By focusing on a select group of high ROIC businesses – just 30 global businesses across 16 megatrends – we were able to benefit from their inevitable rise in price.”

He stressed that megatrends were far broader impacting, more durable and longer lasting than mere themes and they drove profound changes across multiple industries and the businesses within them, that for the right company, acted like strong tailwinds on their compounding earnings.

“The rate of technological change, most dramatically illustrated with the latest advances in generative AI, is an incredibly important ‘super-driver’ of many of our 16 investor-ready megatrends,” Kotecha said.

“We believe it will be the next major tectonic shift and the most compelling force powering technological innovation and our lives over the next decade.”