Global Economics & Strategy_Core Convictions (Multi-Asset Rundown)

Summary of Key Points from the Conference Call Industry and Company Involved - Industry: Global Economics and Strategy - Companies: BAE Systems, Mitsubishi Heavy Industries Core Insights and Arguments 1. German Election Outcomes: Preliminary results indicate a two-party coalition, with CDU/CSU, SPD, and Greens failing to secure a two-thirds majority for constitutional changes, potentially leading to market disappointment regarding fiscal stimulus [3][4] 2. US Economic Indicators: Anticipation of a benign US core PCE release, with a forecasted year-over-year decrease from 2.8% to 2.5% [4] 3. Global Growth Forecast: Expected slowdown in global growth for 2025/2026, primarily due to US tariffs on China, which may negatively impact an already struggling economy [7] 4. Defence Spending in Europe: EU Commission's suggestion to exempt defence spending from fiscal rules could lead to increased defence budgets, supporting a bullish outlook on European equities and non-US defence stocks [7] 5. BAE Systems Valuation: BAE faces risks including government defence budget uncertainties, contract execution capabilities, and political risks in Saudi Arabia, with approximately 40% of its business derived from North America [11] 6. Mitsubishi Heavy Industries Risks: Risks include sluggish capital expenditure due to economic downturns in major markets, rising costs, and yen appreciation [12] Additional Important Content 1. Market Dynamics: The report highlights the potential for fiscal easing in Germany and the implications of higher defence spending on market narratives, particularly for bond yields and equity spreads [3][7] 2. Investment Ratings: Both BAE Systems and Mitsubishi Heavy Industries are rated as "Buy," indicating positive expectations for their stock performance [26][33] 3. Geopolitical Considerations: The report emphasizes the need for increased self-reliance in European defence spending, with current EU spending at 2.0% of GDP compared to 3.4% in the US, suggesting a significant gap that needs to be addressed [7] 4. Emerging Market Sentiment: Optimism in China tech equities is noted, with MSCI China gaining 25% since mid-January, although the broader emerging market sentiment remains mixed [7] This summary encapsulates the critical insights and data points from the conference call, providing a comprehensive overview of the current economic landscape and specific company outlooks.