The Russia-Ukraine War has greatly increased geopolitical uncertainty at a time when financial markets, and in particular equity markets, are trying to come to terms with shifting growth and inflation expectations. Expectations for global GDP and corporate earnings have fallen amidst an acceleration in monetary tightening; the Federal Reserve is signalling it could bring forward rate increases and other measures to combat inflation.
Despite the environment, we remain constructive on equities over the medium term. Our base case is that inflation rates will decelerate as some of the logistics-induced supply chain constraints are resolved and as the economy slows. In addition, we expect wage growth to moderate and, most importantly, that longer-term productivity investments will begin to provide support.
We remain focused on long-term opportunities that offer Quality, Sustainable Growth, and Reasonable Valuation. Our quality framework places a premium on market position, driven by competitive position and pricing power — both of which we believe to be necessary to navigate the current environment. We believe climate transition strategies will be a key growth driver as companies execute their
decarbonization plans to reduce global greenhouse gas emissions. Our first article explores carbon pricing models and the impact they can have on capital allocation. In a similar vein, our second article takes a deep dive into Saint Gobain, a building materials supplier well-positioned to benefit from Europe’s plan to reduce net carbon emissions.
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