Why invest in international shares as we start FY25? At Platinum, we can see three tailwinds for investors seeking the return and diversification benefits of global shares and three potential headwinds.

However, in Platinum’s view, there are now signs that Europe and Japan could lift their growth, broadening global growth. That could be good news, and even better news if China’s much-delayed economic recovery comes through. 

The Middle Kingdom is stuck in a property-induced funk, so the Chinese government has unleashed a range of measures designed to boost confidence in the housing sector – and thus the overall economy. There are some signs it’s working. Consumer confidence is rising and there’s a boom in China in sectors like travel and electric vehicles (EVs).  

A full recovery in China would potentially be good news for global share investors because China is a swing factor, accounting for 18% of the global economy. Only the US is bigger at 25% and the next largest contributor is Japan with just 4% [1]. 

In Platinum’s view, the downstream effects of a stronger China include a healthier global manufacturing sector and higher commodity prices [2].  That could be good for emerging economies like Brazil and Indonesia – and for developed economies like Australia.  
 

2. Three rivers of spending 

The other driver of a stronger global economy is a wave of investment. Much of that investment is the capital expenditure (capex) pouring into Artificial Intelligence technologies. According to Goldman Sachs, revenues at AI hardware providers alone could be up $250 billion on last year [3].  

That vast and accelerating AI spend comes on top of huge sums being spent on decarbonisation – in Platinum's view, the Inflation Reduction Act in the US for example has a strong focus on decarbonisation and envisages US$400 billion being invested in clean energy [4]. That’s a trend we consider is being mirrored in many countries. 

Augmenting the cash flowing into AI and decarbonisation is the money the US, Japan and Europe are spending to bring supply chains closer to home (‘reshoring’).  

Add all these investments together and it’s potentially a major demand boost for the global economy. 
 

3. Good companies catching up

Over the past few years, much of the strength in global equity markets has come from growth stocks and particularly the so-called “Magnificent Seven” tech stocks. Invest a dollar in a US S&P500 today and more than a quarter of that money goes into Apple, Amazon, Nvidia, Google, Netflix, Tesla and Microsoft [5].  

Platinum believes that concentration means many high-quality companies – across a whole range of sectors and geographies – have got less attention and less of investors’ dollars. 
 

The Bear Case 

When Platinum looks at global markets today, there are three things we’re keeping a close eye on:

1. A deficit of solutions

Today the US is running a deficit of 6% of GDP [6]. Historically, that’s very large and most concerningly, in Platinum's opinion, it’s occurring at a time when the economy is growing and unemployment is low. 

That deficit has a raft of downstream effects. In Platinum's opinion, the deficit  forces the US government to keep borrowing and puts upward pressure on rates, thus threatening economic growth. For investors, higher rates may mean revaluing portfolios built on the assumption that money will get cheaper in 2025.
 

2. Ballot box blues

This is the year of the ballot box – the world is still digesting the implications of elections in India, Taiwan, South Korea and Indonesia. Yet the most carefully watched campaign is in the US. 

At Platinum, we’re looking at how the election outcome affects the deficit issue discussed above. A Trump win might mean tax cuts – and a bigger deficit. A Biden win might see some higher taxes but not necessarily reduced spending. Either way, the US budget deficit could get worse. 

That may not be a problem now, but debt crises can build up slowly then explode loudly. Platinum is also concerned that both sides of US politics are happy to talk about higher tariffs. That’s potentially bad news for US consumers and for the global economy.  
 

3. The lag effect

Interest rates in the US have been rising since March 2022,  although that’s yet to slow their economy. But monetary tightening tends to work with a lagged effect and there’s still a possibility that the slowdown arrives – just later than financial markets expected. 

Platinum considers there are some signs of weakness in the US economy – credit card and car finance delinquency rates are up [7] and personal consumption expenditure is stepping down [8]. In Platinum's view, as consumers become more price sensitive that could hurt the bottom line of US companies. 
 

Conclusion

At Platinum, we try not to get too caught up in big macroeconomic predictions, instead focussing on individual companies, the forces affecting their business performance, the quality of the management team and, crucially, on the price we have to pay to own those businesses. 

As discussed above, the economic and market trends of the past few years have left behind many high-quality business that, in Platinum’s view, are trading at appealing prices. 

Today, Platinum would rather own these types of businesses than some of the companies that have led the market. In Platnium’s view, some of those leaders look fully valued, whereas the so-called laggards may potentially present a better opportunity.  

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[1] Based on IMF World Economic Outlook April 2024.
[2] Outlined in www.mckinsey.com/industries/public-sector/our-insights/the-inflation-reduction-act-heres-whats-in-it
[3] See www.goldmansachs.com/intelligence/pages/AI-is-showing-very-positive-signs-of-boosting-gdp.html
[4] Outlined in www.mckinsey.com/industries/public-sector/our-insights/the-inflation-reduction-act-heres-whats-in-it
[5] Source: www.gsam.com/content/gsam/us/en/institutions/market-insights/gsam-insights/perspectives/2024/concentration.html
[6] Source: Federal Reserve of St Louis. See https://fred.stlouisfed.org/series/FYFSGDA188S
[7] See www.newyorkfed.org/newsevents/news/research/2024/20240514
[8] See www.bea.gov/news/2024/personal-income-and-outlays-april-2024

DISCLAIMER

This article has been prepared by Platinum Investment Management Limited ABN 25 063 565 006 AFSL 221935 trading as Platinum Asset Management (“Platinum”). While the information in this article has been prepared in good faith and with reasonable care, no representation or warranty, express or implied, is made as to the accuracy, adequacy or reliability of any statements, estimates, opinions or other information contained in the article, and to the extent permitted by law, no liability is accepted by any company of the Platinum Group or their directors, officers or employees for any loss or damage as a result of any reliance on this information. Commentary reflects Platinum’s views and beliefs at the time of preparation, which are subject to change without notice. Commentary may also contain forward-looking statements. These forward-looking statements have been made based upon Platinum’s expectations and beliefs. No assurance is given that future developments will be in accordance with Platinum’s expectations. Actual outcomes could differ materially from those expected by Platinum. The information presented in this article is general information only and not intended to be financial product advice. It has not been prepared taking into account any particular investor’s or class of investors’ investment objectives, financial situation or needs, and should not be used as the basis for making investment, financial or other decisions. You should obtain professional advice prior to making any investment decision.