'Prophetic' Goldman Manager who foresaw 2019's equity rally bets on Europe

The Goldman Sachs asset manager who foresaw this year’s rally in equities is entering 2020 with a focus on the euro-area stocks most likely to benefit from the region’s economic recovery.

Shoqat Bunglawala, who heads the global portfolio solutions group for EMEA and Asia Pacific at the $1 trillion Goldman Sachs Asset Management, says investors are too pessimistic on Europe’s growth prospects. In early November, GSAM’s globalmulti-asset funds turned overweight on euro-area cyclicals.

“We think Europe will avoid a recession and that’ll help cyclical stocks,” Bunglawala said by phone. “The market seems to be pricing in a more negative growth outlook than we expect.”

The fund manager joins a chorus of investors and strategists that are becoming more optimistic on European equities after political and economic problems kept many market players on the sidelines of this year’s rally. The market, which lost $100 billion to outflows in 2019 alone, may now be at a turning point after Boris Johnson’s UK election victory and the US-China phase-one trade deal alleviated some of investors’ biggest concerns.

The Stoxx Europe 600 surged to a record intraday high on Monday. But European cyclicals have lagged behind their US counterparts this year, with the MSCI EMU Cyclical Sector Index adding 21 per cent compared to a 31 per cent jump in its US counterpart.

Bunglawala particularly favors euro-area banks, which, he says, aren’t being recognized for their improving bad loan and capital levels. The Euro Stoxx Banks Index is up 11 per cent this year, about half of the Stoxx 600’s gains in 2019, with the sector suffering from negative interest rates.

The asset manager is in line with other major firms like BlackRock Inc. in saying that while it’s worth sticking with risk assets into 2020, the gains will be far more limited than in 2019. 

When interviewed a year ago, Bunglawala recommended buying US and emerging-market stocks, even as global equities were plunging on fears of tighter monetary policy and slower growth. His bet turned out to be prophetic as the S&P 500 is up 26 per cent this year while MSCI Emerging Markets Index has gained 13 per cent.

“We’d expect the expansion to continue but given what’s been priced into the equity market already, with trend-like economic growth, we’re likely to see more moderate returns,” Bunglawala said.

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One of the funds that he helps oversee -- Goldman Sachs GlobalMulti-Asset Income Portfolio -- outperformed 88 per cent of peers in 2019. As of the end of October, the fund included Royal Dutch Shell Plc and Johnson & Johnson among its top holdings.

Going into 2020, GSAM also remains positive on US stocks, is long South African equities relative to emerging markets and prefers Korean stocks to Taiwan.

Economic growth remains one of the biggest question marks for Europe in 2020 as a further slump in manufacturing or a recession in Germany can outweigh the improvement in political risk. The challenging outlook was highlighted by the European Central Bank last week, which revised down its projection for expansion next year.