George Maris, CFA
CIO and Global Head of Equities at Principal Asset Management
At the beginning of the second half of the year, we sat down with George Maris, Chief Investment Officer and Global Head of Equities at Principal Asset Management, to discuss his outlook for the equity markets, where he sees the challenges and opportunities, as well as the potential markets shifts.
George: U.S. exceptionalism fundamentally represents being the primary driver of global innovation, a trend that dates back to the end of World War II. The U.S. has historically led in technology, healthcare, and business management. However, while the U.S. continues to be a hub of innovation, it does not have a monopoly on it. For instance, the landscape of semiconductor outside the U.S have evolved significantly, with some companies potentially outpacing U.S firms. We have seen advances in health care and biotechnology emerging from Asia, Europe, and other regions.
Despite this, the U.S. remains a critical hub for capital markets and continues to attract talent, fueling further innovation. While the narrative of U.S. exceptionalism may need refinement, I believe its core remains intact. The U.S. still stands as a magnet for innovation, but global advancements also emerge from other regions. Investors should recognize that the U.S. is not the only place to invest.
George: AI as a theme continues to grow. The range of AI applications is expanding rapidly, with many organizations exploring innovative ways to improve data quality and operational efficiency. Leading firms are achieving free cash flow margins, highlighting their profitability and justifying their elevated valuations. This capital-intensive nature allows larger players with strong balance sheet to dominate, while it also allows smaller companies to use AI to disintermediate peers that have not adapted quickly to technology.
George: The opportunities outside the U.S. are compelling, particularly when we look at valuation discrepancies. Europe is on a transformative path, especially with changes in Germany's defense spending indicating a commitment to growth. The UK’s push for Heathrow expansion reflects a willingness to reduce bureaucracy and support pro-growth initiatives. European companies, often underestimated, have thrived in challenging conditions, demonstrating their efficiency. If growth becomes self-sustaining, the potential for earnings will significantly increase, making Europe and the UK attractive for investment in the future.
Emerging markets present diverse opportunities. Brazil may soon experience political changes that encourage capital investment and economic revitalization. India benefits from strong demographics and ongoing market restructuring, promising sustained growth. China is the key for emerging markets. Despite current economic challenges, proactive policies could lead to recovery and growth, making China a compelling investment choice once the tariff noise and geopolitical noise subside.
George: The current uncertainty we are facing now is not new. The source of uncertainty always changes. However, as long as the system remains resilient and innovative, there is every reason to expect markets will continue to generate positive return. In every environment, there are risks and opportunities. It is crucial to recognize that unanticipated risks often pose threats. However, each market presents opportunities; risks could sometimes be overdone.
A long-term, fundamentally driven perspective is key to generating returns. As a portfolio manager, it is essential to identify free cash flow growth and determine the right price to pay for it. This approach has shown consistent performance over decades, regardless of market conditions. Finally, maintaining discipline in evaluating a company's profitability and cash returns is vital.
Risk considerations
Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. International investing involves greater risks such as currency fluctuations, political/social instability, and differing accounting standards.
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