Vital Stats on the French Equity Market – Goldman

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 »

Altice: Credit Suisse Stays Neutral, ABN Amro Buys

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).

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UBS Sees MSCI Asia ex-Japan and TOPIX at 790 and 2,100 Respectively End-2018

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.
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UBS Sees Stoxx Europe 600 at 440 Points 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. »

Altice: Prefer the Credit to the Equity, says BofAML

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 »

Long Term Expected Returns Have Just Gone Lower – Morgan Stanley

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. »

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What Signals A Bear Market ?

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.

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Follow the Money

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.

Source: HSBC

Low Vol Regime In Perspective

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

Source: Goldman Sachs

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Upside Potential For Malaysia Is Not A Given, Says HSBC

Source: Pixabay

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.

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FOMO

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.

Continuer la lecture de « FOMO »