Asset Class Roundup | Equities

Looking Further Afield for Opportunities

December 5, 2023 | By: Stephen Way

Looking Further Afield for Opportunities

U.S. equity opportunities may lie outside the narrow group of stocks related to artificial intelligence, while equities in Europe, China and Japan could offer additional prospects for returns in the year ahead.


Global equity markets posted positive returns in 2023 despite meaningful uncertainty stemming from bank failures, geopolitical events and a slowing economic environment that faced decade-high inflation and rising interest rates. U.S. equities experienced one of the narrowest markets in decades, sparked by a sharp rally in artificial intelligence (AI) and large-language model related stocks early in the year. Consequently, large-capitalization stocks outperformed small-cap stocks, supported by the frenzy over AI and by investor preference for the perceived safety of the big names in an uncertain environment.

The question is whether markets will remain a “land of the giants” going forward. We have some doubts and believe there are better U.S. opportunities outside the narrow group of AI-related stocks.

The resilience of the American economy in 2023 took many by surprise. It was supported by a robust labour market, a surplus of consumer savings from the 2021 stimulus and unexpected liquidity injections as policymakers bailed out regional banks. We believe some of those tailwinds could transition to headwinds next year, as the ripple effects of stimulus and savings fade. Historically, U.S. election years – and 2024 is one – have correlated with heightened volatility in equity markets yet, paradoxically, have also demonstrated a more favourable environment for stock picking. Interestingly, from a historical perspective, a split U.S. Congress has resulted in the best market outcome, with an average annual return of 11% in election years since 1928. Those factors may function on a broad level in U.S. equity markets, suggesting investors could benefit from expanding their focus beyond mega-caps in 2024.

Several global central banks continued to raise policy rates in 2023 due to inflationary pressures. We expect core inflation to remain persistent next year, which could force central banks to maintain higher policy rates for longer than the market expects. Still, the full impact of central bank tightening has yet to be seen in several countries, given long lead and lag times on the economy. While there is growing consensus that a “soft landing” may occur in the U.S. in 2024, they are quite uncommon from an historical perspective, occurring only four times in the last 75 years, according to Ned Davis research. We anticipate a mild recession is more likely, given the speed and intensity of recent monetary tightening, and other cautious forward-looking economic indicators.

Capital expenditure (capex) is poised for a continued revival, driven by the imperative of security in the global geopolitical landscape. Two supportive U.S. industrial policy statutes, passed in 2022, are expected to continue supporting the capex cycle. The Inflation Reduction Act (IRA) and the Creating Helpful Incentives to Produce Semiconductors and Science Act (CHIPS) have provided billions of dollars to manufacturers to produce in the United States, and they have helped to attract foreign companies to build U.S. production facilities.

Themes with broad support include re-shoring, U.S. manufacturing and defence spending, with a low risk of defence spending cuts even by deficit hawks. We believe all these trends are bullish for equities and gross domestic product (GDP) growth. Capex guidance remains strong, particularly from the biggest technology companies. The upgrade cycle and domestic investments amid re-shoring could indicate a potential and substantial boost to productivity ahead.


Economies in Europe fared better than expected in 2023. In equity markets, eight of the 11 Global Industry Classification Standard sectors outperformed in Europe relative to the United States. However, European stocks still underperformed relative to the United States, in large part because of the U.S. Information Technology (IT) sector’s strength and European markets’ meaningfully smaller exposure to IT. We anticipate that European earnings could roll over in 2024 as the central bank monetary policy tightening further weighs on the corporate sector. 

In Asia, Japan has emerged from three decades of economic stagnation while seeing an acceleration in corporate reform, which could continue to support Japanese equities. However, the Bank of Japan will likely end yield curve control (YCC) at some point in 2024, which could put upward pressure on global bond yields as Japanese yields continue to rise. Encouragingly, we believe the Japanese government is trying to promote an equity culture in Japan to rectify decades of corporate inattention to shareholder returns. That will go hand in hand with policy normalization.

In contrast, China has experienced a disappointingly slow reopening recovery amid structural headwinds from high debt levels, demographics and deflation, as well as geopolitics. So far, authorities in China have employed relatively modest monetary tools and fiscal measures to stimulate the economy, leaving markets somewhat underwhelmed. A substantial stimulus similar to those seen during the 2008-2009 and 2015-2016 downturns appears improbable. However, we expect China will continue to build on its recent policy momentum, aiming to boost sentiment, stabilize property markets and support overall economic growth.


Stephen Way
Stephen Way, CFA®
SVP and Head of Global & Emerging Markets Equities
AGF Investments Inc.
SVP and Head of Global & Emerging Markets Equities

Steve Way leads portfolio management responsibilities for global equity and global dividend mandates at AGF. As the architect of the Economic Value Added (EVA)-based investment process used for these industry-leading mandates, he is supported by a team that uses its collective experience to locate opportunities unrecognized by the market. Steve is a member of The Office of the CIO – a structure within AGF’s Investment Management team. This leadership structure encourages and further embeds collaboration and active accountability across the Investment Management team and the broader organization. He is also a member of the AGF Asset Allocation Committee (AAC), which consists of senior portfolio managers who are responsible for various regions and asset classes. The AAC meets regularly to discuss, analyze and assess the macro-economic environment and capital markets in order to determine optimal asset allocation recommendations.

Steve’s industry experience began when he joined AGF in 1987. In 1991, he established AGF’s wholly owned subsidiary AGF International Advisors Company Limited in Dublin, Ireland and ran the operations as Managing Director until 1994.

Steve holds a B.A. in Administrative and Commercial Studies from the University of Western Ontario. He is a CFA® charterholder and a member of CFA® Society Toronto.

Portfolio Manager under AGF Investments Inc. and AGF Investment America Inc. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.

The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF Investments.

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