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 * Sector Atlas 2024: the outpriced, the outcasts and the outliers




SECTOR ATLAS 2024: THE OUTPRICED, THE OUTCASTS AND THE OUTLIERS

4 september 2024
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Executive Summary

Heavy political agenda to test global economic resilience once more. Global
growth bottomed out in H1, but the global manufacturing sector is still in
excess supply, and demand remains sluggish especially in the Eurozone. We expect
global GDP growth at +2.8% in 2024 and 2025, with growth slowing to +1.7% in the
US and reaching +1.4% in 2025 in the Eurozone. China will continue to manage its
growth slowdown (+4.3% in 2025).

Corporate earnings towards a recovery? The latest earnings season has delivered
mixed results: global revenues grew by +3.5% y/y but revenues stalled for
European corporates (-0.7% y/y) while US and Asia-Pacific firms both reported
growth at +4.5% y/y. Nevertheless, 58% of global corporates, including 59% of
European ones, beat expectations. From a profitability perspective, global
earnings grew by +14.7% y/y. US firms reported +10% y/y in earnings growth with
69% beating expectations while 53% of European ones also beat expectations
despite reporting -2.5% y/y growth. A few sectors mostly related to technology
are outperforming, while others struggle. In the US, S&P 500 firms showed
moderate growth, but concerns about future earnings are still lingering. In
Europe, cyclical sectors and the luxury industry – a long-time outperformer –
are slowing. Banks are holding up well despite heightened economic
uncertainties. Looking forward, economic resilience and easing monetary policy
could support further growth and the earnings recovery.

Looking closer into sectors, we identify 3 main clusters: (i) sectors facing
weaker demand and lower pricing power, (ii) sectors facing supply chain and
geopolitical challenges and (iii) industries with stable or improving outlook.
In the first cluster, we have sectors like pulp & paper, chemicals, agrifood,
retail, textiles and household equipment where limited growth and pressured
margins dominate the outlook. Supply chain and geopolitical issues are still
significantly weighing on industries such as transportation, energy, and
transport equipment, where demand remains resilient but operational and
geopolitical hurdles persist. Stable or improving sectors, including
pharmaceuticals, automotive, computers and IT services, benefit from
technological advances such as AI which is boosting corporate IT spend and
steady demand through structural trends (e.g. demographics, green transition
etc.). However, some of these sectors face specific challenges like regulatory
risks.

Given this context, the majority of our sector ratings fall into the ‘Medium’ or
‘Sensitive’ risk categories. 87% of all ratings across regions fall into these
two ratings. Like last year, there is notable variation in risk levels between
regions, with Asia generally being safer and Latin America being more at risk.
In terms of industries, pharmaceuticals and software & IT services tend to have
stronger ratings, while construction, textiles, and metals are considered
riskier. Compared to the pre-Covid period, most sectors are still below 2019
despite the recovery in ratings. Changes in ratings over the last four quarters
are pointing to several sectors standing out. Household equipment, chemicals,
construction and textiles are standing out with an overall negative balance. On
the contrary, the recovery in ratings proved to be substantial in the auto
sector, in transportation and in machinery equipment. But this is not a surprise
since those sectors were the ones most downgraded after the onset of the
pandemic.


AUTHORS

Ludovic Subran
Allianz SE
+49 175 584 27 25
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Maxime Lemerle 

Allianz Trade

+33 (0) 1 84 11 54 01
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Ano Kuhanathan
Allianz Trade
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Yao Lu

Allianz Trade

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Maria Latorre
Allianz Trade
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