Robert Brunelle, senior vice president of Hexavest, a Montreal, Canada-based fund manager within the Eaton Vance group, was recently in Sydney to discuss the global macro environment.

The United States' monetary policy of quantitative easing; global interest rates; investor sentiment; and where to find the few pockets of value were key themes he covered.

"People are starting to get a little bit nervous about where equity markets are headed, particularly valuations in certain markets, given the duration of the bull market that we've seen, which is one of the longest continual bull markets we've had for quite some time," Brunelle says.

"What we're seeing is a trend towards even more alternative asset classes…with interest rates so low, it forced everyone to take more risk in their portfolios … so we've seen a lot of push towards alternatives like global real estate and infrastructure." 

As a top-down manager, Hexavest takes a top-down approach, starting with the macroeconomic environment. Sentiment also informs a big part of its process.

"We are contrarian investors. When everybody's very optimistic, that's when we try to be a bit more prudent. And the flipside of that, in 2009, we had our largest position in US financials," Brunelle says.

"So today, given the longevity of the bull market that we've had, we think sentiment is quite stretched … as part of our DNA, we're more scared of losing money than missing an opportunity.

"It's about getting the big picture right, and seeing the forest instead of the individual trees, that's really what drives this strategy in global equities."

Europe and Japan are among a few markets where it currently sees value, where they agree with the consensus view, according to Jean-Rene Adam, Hexavest's co-chief investment officer and portfolio manager.

"Where we don't agree with the consensus would be in the US and China. We think the US will slow down … there's quite a lot of gridlock there at the moment, we don't think we'll see tax reform, and if it does happen it's going to be a lot smaller than people expect."

He also anticipates a drop-off in China, with credit growth beginning to tail off.

Both Adam and Brunelle refer several times to the end of quantitative easing in the US, with the US Federal Reserve already starting to reduce its balance sheet. They expect QE will end during 2018.

Comparing the current situation for investors around the world to the period immediately following the GFC, he says it's now "a lot easier to identify this as a valuation bubble".

"People will say the global economy has improved over the last year and a half, maybe it's time to buy global stocks, but we don't agree with that," Adam says.

With the prolonged period of low interest rates, levels of indebtedness have crept up. "The global economy is now a lot more sensitive to a rise in interest rates, because indebtedness has now risen so much higher than it was before the global financial crisis," he says.

"I think that everything comes back to QE, that's where it all started … I think we're going to come back to where it was. With regards to the US, people were ready to pay a big premium for the US stock market over the last two years because it was the only story in town, it was the only way to get growth.

"Now that's not the case any more. In Europe, the economy is doing better than in the US, even if it's potential growth is lower, and emerging markets are now back on track, and Japan is doing fine."

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Glenn Freeman is a senior editor at Morningstar.

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