Strong EM prospects on MLC’s radar in 2024

MLC has credited strong sharemarket investments, both global and domestic, towards its impressive performance in the last calendar year, delivering 9.6 per cent from its MySuper Growth portfolio and 7.8 per cent from its MySuper Conservative Balanced.

MySuper Growth is the investment option for its members under 55 years of age – where the majority of members are invested.

“The key growth drivers over the year were our investments in global shares unhedged to the Australian dollar (20.3 per cent), global shares hedged to the Australian dollar (19.4 per cent) and Australian shares (12.9 per cent),” said Dan Farmer, chief investment officer, MLC Asset Management.

Additionally, the asset manager’s unlisted infrastructure strategy and credit exposures also contributed to the fund’s strong performance, he added.

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Looking ahead, the CIO highlighted that stocks with quality characteristics, strong balance sheets, and resilient earnings will likely offer superior return outcomes amid considerable macro-economic and geopolitical uncertainty.

More specifically, he identified bright spots in emerging markets and unlisted assets for 2024. 

“We see strong return prospects from emerging market equities where valuations are more attractive and opportunities for alpha generation through active management are likely to be favourable,” Farmer said.

“We continue to see investment opportunities in unlisted assets, particularly in the infrastructure and private credit sectors, however the quality and valuation attractiveness varies quite widely across sectors and individual opportunities.”

Additionally, Farmer said the asset manager is seeing significant opportunities across private credit markets, adding that it has made a significant number of loans in the direct lending space over the past year.

“Across private credit markets we are seeing significant opportunities to lend capital at attractive yields particularly where borrowers are finding it challenging to secure bank lending,” Farmer said.

“We see a significant role and opportunity for super funds to play in the provision of capital where this can be done at yields that are sufficiently attractive relative to the risks inherent in the credit exposure specific to each loan.”

Farmer observed the tailwinds and headwinds for 2024 appear to be finely balanced, with the potential for the continued moderation in inflation to give rise to rate cuts.

“This could result in a reacceleration in activity as borrowing costs fall, financial conditions ease, and animal spirits are reignited,” he said, while robust savings and household balance sheets could support a continuation of resilient consumer spending.

“Stronger productivity gains on the back of innovation stemming from generative artificial intelligence could also provide a strong tailwind for global asset prices and the macro economy if it proves to be as transformative as the information and communications technology revolution of the late 1990s.”

Meanwhile, the asset manager identified continued weakness from the Chinese economy as a headwind, particularly from the structurally challenged property market and weak consumer sentiment. 

“Meaningful stimulus from Chinese policymakers could turn this headwind into a tailwind, but we are yet to see clear signs of this,” said Farmer. 

Finally, he said, geopolitical concerns remain a headwind in 2024. This, he said, includes “a volatile and hotly contested election year for the US, a continuation of wars in the Middle East and Ukraine, and what is shaping up to be the biggest global election year in history (with over 50 countries having general elections)”. 

Each of these is “likely to result in increased volatility and heightened risk for asset prices and the global economy”, the CIO said.