H1 global equities up 13%

Global equities have seen a remarkable recovery this year, with a 13% increase after experiencing significant declines in the previous year. This surge has caught the attention of investors worldwide, prompting discussions about potential investment opportunities and the possibility of entering a bull market. To shed light on these developments, CNBC Africa interviewed Simon Fillmore, the Chief Investment Officer at Independent Securities. Fillmore shared his insights on the current state of the equities market and highlighted key factors that may drive further growth in the sector. A major catalyst for the positive momentum in global equities, according to Fillmore, is the decline in inflation rates. He pointed out that while the expected inflation rate stands at around 3%, real inflation may be even lower. The downward trend in inflation has been consistent, with various indicators suggesting a reduction in prices across different sectors. Recent data from the US, such as the decline in second-hand car sales prices and the contraction in Chinese Producer Price Index, signal a global trend towards deflation, further supporting the case for continued market growth. Fillmore also emphasized the impact of valuations on market performance. He noted that valuations have significantly dropped from their peak levels in 2021 and early 2022, making current price-to-earnings ratios more attractive for investors. The upcoming earnings season, particularly for US banks, is expected to provide a positive outlook based on the guidance given by companies. Fillmore highlighted that historical trends indicate a potential upward movement of equities following the end of the Federal Reserve's rate hiking cycle. He mentioned a historical average of a 22% increase in equities over the next 12 months after such events. Addressing concerns about high valuations, especially in the technology sector, Fillmore suggested that the most significant contraction in valuations may have already occurred. He explained that companies with above-average growth rates and returns on invested capital are likely to maintain elevated price-to-earnings ratios, reflecting market demand for promising growth opportunities. In terms of capital allocation, Fillmore recommended focusing on investing in companies with strong returns on invested capital, a strategy that aligns with their philosophy of seeking good companies at reasonable prices. Given the inherent bias towards technology companies due to their favorable capital structures, Independent Securities remains overweight on the technology sector. They have strong positions in payment processors like Visa, MasterCard, and other technology-related companies, anticipating continued growth as the world transitions towards cashless transactions. Overall, Fillmore's analysis paints a positive outlook for global equities, highlighting key drivers that could sustain the current market momentum and potentially lead to a bullish trend in the future.