So far, 2017 returns have been good for US equity investors. 2018 won’t repeat that, according to Morgan Stanley’s strategists in a report published today. Continuer la lecture de « Expect More Volatility in the US Equity Market – Morgan Stanley »
Morgan Stanley keeps a bullish call on equities in cross asset 2018 outlook published today, but ups government bonds to « Equal-Weight » and lowers credit to « Underweight ». Timing will be tricky. The bank also prefers EM debt. Continuer la lecture de « Morgan Stanley Favors Equities in 2018, Ups Bonds »
This is a bit « old » (Sept 19, 2017), but Goldman published a series of research papers on 5 European countries (France, UK, Germany, Italy, Spain) where they have a broad look at the economy and have a couple of CEOs and their own analysts/economists comment on the trends in macro/business. Continuer la lecture de « Vital Stats on the French Equity Market – Goldman »
Company Name : Experian Plc
Nb of shares : 924.2m
Last close : GBP15.52
Market Cap : GBP14.3 bn
Sector : Business Services (information services) Continuer la lecture de « Focus/Stock: Experian Plc »
2 useful tables from Deutsche Bank that give a view on fundamental trends and valuation ratios for several market places + a deep dive into European markets (geographies/sectors/size).
The bank expects the Stoxx Europe 600 to be about flat over 2018, before contracting by 19.5% in 2019, in part due to the anticipation of a US slowdown by 2020. By 2 years time, the European market should endure a krach. Continuer la lecture de « SocGen Bearish On European Equities Going Into 2019… »
Altice seems to be in a precarious financial conditions and has lost the faith of investors. Shares have lost 48%, mainly due to the deteriorating KPIs and financial indicators at SFR.
At a recent conference, Patrick Drahi took the helm to try to calm investors but so far, little results. And brokers seem to have conflicting views.
To comfort Altice, ABN Amro’s analysts have issued a « Buy » recommendation on the shares, but not all are convinced. The same day, Credit Suisse also published a report with a Neutral rating, which comes a couple of days after BofAML downgraded the stock.
Here are their arguments.
(DISCLAIMER: This information is not an investment recommendation. It is just given as an information, not an advice. You need to do your own due diligence to see if an investment fits in your Investment Policy Statement, provided you have one).
From Neal McLeod and team at UBS:
« Our base case: a benign growth and policy backdrop…
We’re forecasting global growth to stabilise at 3.8% (China to slow from 6.8% to 6.4%), the export rebound to slow somewhat, inflation to pick up modestly, the Fed to hike rates three times by end 2018 (from now), US Treasury yields to grind higher to 2.7%, Asia ex Japan currencies to be flat (in equity market cap terms) versus the USD and the Yen to weaken to 122.
Continuer la lecture de « UBS Sees MSCI Asia ex-Japan and TOPIX at 790 and 2,100 Respectively End-2018 »
Per Nick Nelson’s report date Nov 13:
« We recalibrate our top-down earnings model as it had been persistently underestimating the turn in operational leverage. We now see 10% EPS growth in 2018. Consensus estimates are 8.9%, but adjusting for the average upward bias, underlying « true » consensus may be as low as c.2%. We see modest P/E re-rating to 15.7x from 15.0x currently. For the FTSE 100, we are more conservative and target 7,900 end-2018 (c.6% upside). »
« Upside risks: Equities re-rate to previous cycle peak valuations. This would point to c.33% upside from the current levels. European corporates re-gear to US levels. US investors return (net buying peaked in May). European M&A picks up, currently running c.30% below the US. Effective French labour market reform. »
« Downside Risks: Rates and bond yields rise too sharply. But a gradual move would likely be manageable – Europe has very little Tech (6% of index) and a large amount of positively rate sensitive Financials (c.25% of index). Significant Euro strength, on our forecasts (EUR/USD 1.25 end 2018) this is manageable. Higher volatility / political risks in Spain and Italy. »
Jan Loeys has been working as the head of asset allocation for JPMorgan, where he has spent 31 years. He was famously known for the « JPMorgan View » report, published every Friday.
I couldn’t retrieve the apparent last note published but Zerohedge did, so here are some quotes from the full text that you can find there. Continuer la lecture de « Interesting Lessons from Jan Loeys »
US equity market could continue its run next year with the risk that investors fall into euphoria. Continuer la lecture de « Merrill Lynch Sees S&P 500 at 2,800 end 2018… With Some Risks »
Per Bank of America Merrill Lynch report published Nov 21:
« Altice shares have lost 50% of their value post results, while the CDS on the holding have increased by 300bps. Management took action with: 1/ the resignation of the CEO and the return of Patrick Drahi to full control of operations, 2/ admission of poor execution in France, now the #1 focus, and 3/ a priority on debt reduction, involving noncore assets and towers disposals. However, ATC also significantly rebased its midterm expectations on France. Although the steps taken should comfort credit holders, we think the case for the equity is balanced, with long term upside on execution, content monetization and domestic consolidation, but unclear valuation support on our reduced forecasts, and a recovery that remains largely dependent on external competitive forces. Unlike Glencore in 2015, we don’t see material valueenhancing options to drive mid term outperformance and downgrade to Neutral with a PO of €11. Our credit analyst Nick MacDonald is positive on the credit »
And leverage has been building up since the global financial crisis, contrary to most belief. So if you think the streak of bad luck Altice has been facing recently is just a one-off, think again. Continuer la lecture de « Leverage Sets the Stage for the Next Crisis »
Why is it important and can one estimate it ? Continuer la lecture de « What’s an Economic Moat? »
2017 has been good for US equities, but most of the performance is related to the technology sector… Valuation are stretched but could continue to be so for a while, as long as macro/monetary backdrop is supportive.
From Barclays US Equity Strat team: Continuer la lecture de « US Equities: The Cycle Is Still Well Oriented – Barclays »
We’ve started receiving outlooks for 2018 and there seem to be some dispersion in brokers’ expectations. Continuer la lecture de « 2018 is going to be very interesting »
Over the last 8-9 years, financial assets have had a good run, but now valuations look stretch and expected real returns are low. Continuer la lecture de « Where is the Cycle? What Should My Asset Allocation Look Like? »
For a Monday morning, Kepler Cheuvreux’s strategist Christopher Potts had a nice wake-up call for investors, recommending them to Underweight Europe and EM and go Overweight US and Japan… Continuer la lecture de « Sell When You Can – Kepler Cheuvreux »
Getting a decent return from a diversified portfolio is getting more difficult by the year. According to Morgan Stanley’s calculations, « a traditional 60/40 equity/bond USD portfolio will see 4.2% per annum over the next decade, while the same in EUR fares only slightly better at 4.7%, and GBP at 4.9%; only the JPY 60/40 portfolio sees above-average expected returns, driven by elevated equity risk premiums. »
The anatomy of bull markets since 2009 differs greatly among regions. GS did a good job deciphering the drivers of rising equity markets in different countries, which show the contribution of both valuation (P/E i.e. investor psychology) and fundamentals (i.e. real corporate profits).
Bear markets (BM) are painful. Since the 50s, US bear markets have resulted in an average loss of 31% (most painful were Oct-07 at 57%, Mar-00 at 49% and Jan-73 at 48%).
Of course, timing the market is futile and doesn’t help the investor over the long run. It’s more important to have a clear view on the value of any financial asset and seize it when it trades with a margin of safety.
But understanding the market dynamics and the financial environment might be helpful, especially if you want to be able to take advantage of the next downturn.
Goldman Sachs published an in-depth report on the characteristics of bear markets and what signals investors should track to try and anticipate them.
The S&P 500 has gone 10 months without a 3%+ selloff. It’s the third longest since world war II. But the conditions for such a pullback are getting in place.
According to Deutsche Bank’s strategists, a number of facts should have investors worried about potential market correction in the coming weeks/months.
Risk assets keep attracting money and it’s getting even better when compared to last year. HSBC published a report on fund flows to asset classes. Equities are getting inflows so far this year compared with outflows last year.
European equities are taking advantage of this positive trend, which is a good news and bring another supportive factor to rising equity markets.
Is it almost over or does the bull market have the ability to last a bit longer? What indicators should investors look at the get a sense of where we are in the cycle? Nomura’s Kevin Gaynor published a very interesting checklist and shared his views on how to assess the end of the current cycle.
Volatility is the most disturbing factor in financial markets and it’s something people should always keep an eye on. Measured by popular metrics like VIX or VSTOXX, it’s assimilated to the « fear indicator » of investors.
Looking at the long past of the US equity market (S&P 500 in chart below), you can see that volatility goes in regimes that can change widely but rely mainly on macro environment (expansion/recession) and it’s impact on the psychology of investor (P/E or valuation).
Volatility in equity market in perspective
The laggard argument to reposition part of asset allocation to Malaysia might be a mistake, according to HSBC’s strategists. Investors should actually be looking at more fundamental drivers to reconsider their exposure to the Asian economy, such a rising commodity prices, increased China investments in the region and political upside risk.
Better growth, low inflation. It’s the perfect backdrop for risky assets. But in a late cycle environment, one of the driver of financial markets people should always be fearful about is the « fear of missing out », especially when the rise in stock market accelerates and relies more on multiple expansion than fundamental improvement.