Which is the best support for European equities : earnings… or US investors ?

Maybe both actually… Lire la suite

6 reasons why « Value » should continue to outperform in 2017

To those who fear market have already priced in a lot of good news, especially on the « Trump » effect on the macro backdrop, and that maybe the « Value » trade is now overcrowded and associated sector rotation (from defensive names to more cyclical ones) is overdone, Morgan Stanley’s equity strategy team, lead by Graham Secker, has some good news. Actually 6… Lire la suite

Europe consumer staples: what will drive earnings in 2017?

The European consumer staples sector has been characterized by slowing organic growth number, due to volume softness and pricing pressure, which has in turn contributed to its valuation de-rating, on top of sector rotation triggered since July 2016 by the rise in bond yields. What will be the drivers of earnings going forward ? Lire la suite

European equities: risk-reward to the downside

Global and regional macro backdrop is improving, investor sentiment is getting more bullish, EPS have turned the corner and are now on a more positive trend… No surprise European equities finished 2016 in a pretty better shape than they started it. Is the rally going to continue in 2017 ? Well, the mood is there and some brokers have decided to add some fuel to it.

This morning, Deutsche Bank and Merrill Lynch raised their SXXP y/e target to respectively 375 (from 345) and 390 (7% upside). Drivers for upside: accelerating growth, higher earnings revisions and EPS growth (11% for 2017e vs 7-8% previously at Merrill), forward P/E of 15x (stable from current level).

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European equity around fair value, won’t change by end of year – UBS

UBS’s Europe strategists stick to their Stoxx 600 340 points target by year-end and provide a useful table of the underlying fundamentals/valuation factors. The following table illustrates where market would be if you change either 2017 EPS earnings growth and 12month forward P/E ratio. Bottom line: if you are cautious right now, don’t touch European equities.

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Are Equity Risk Premiums of Any Help to Investors ? Not so sure…

Source: Goldman Sachs

Source: Goldman Sachs

From GS’s latest GOAL publication:

« Much of the reason that equities appear cheap versus bonds therefore is simply a reflection of how much bond yields have fallen. Most measures of the ERP will use some kind of long-run historical average measure of profit growth and extrapolate into the future. »

Current levels of ERP assumes that earnings growth of the past 20 years will go one forever. But that’s a hard case to make. In fact, as GS’s strategists put it:

« Here lies the great dilemma for investors: on the one hand, current bond yields imply that valuations can continue to rise for financial assets (as they have already done over recent years), but, on the other hand, to justify current risk free rates into the future, we should assume lower long-term growth (consistent with ‘secular stagnation’).This should cap the level of valuations close to current levels.This is why we argue that while the Long Good Buy for equities still holds – they should do well relative to bonds over the medium term – the market trajectory is likely to be flatter than experienced through 2009 to 2016. »

Post Brexit, European banks have lost 228bn euros of market cap

Source: Goldman Sachs

Source: Goldman Sachs

That’s a severe correction (knowing it started way before the UK referendum). But Goldman’s analyst add some interesting comments:

 » Whilst EUR funding is exhibiting no sign of strains, funding pressures are gradually building in USD (USD/EUR and USD/GBP cross-currency basis) and GBP funding indicators. This said, they remain at levels that are a fraction of previous crises (2009 and 2012) peaks. We maintain that funding shocks are unlikely, given generous central bank backstops – these were sufficient to contain the aftermath of both the Lehman and European sovereign crises. »

European banks are probably stay in such a comatose stage for some time, as long as there are no sign of steepening yield curve or a better macro environment. On top of that, due to there high beta, banks are considered a good play to short the market when everything goes wrong. So be careful if you decide to pick one.

Always a good question: what’s priced in?

And the answer from Barclays:

« While valuations are certainly not pricing in a full-blown global recession, we are not far away from pricing a 2012-style moderate recession. If such a scenario were to fully materialise, the fundamental floor appears to us to be a STOXX 600 level of 300 (c. 10% below today’s levels). However, if a more benign economic scenario were to occur, as per our economic team’s forecasts, we expect valuations to eventually revert higher. Till further evidence of this materializes, in the near-term, we expect markets to remain volatile and follow economic and political developments. »

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Morgan Stanley Cross asset views after Brexit


Source: Morgan Stanley

Interestingly, one week after the event, systemic risk doesn’t seem to be an issue…


Source: Morgan Stanley

Views per asset classes:

  • Equities: stay defensive (global earnings have been falling, and valuation are relatively fair)
  • Currencies: USD bull market is not over…
  • Rates: lower for longer
  • Credit: best option for carry

Goldman’s strategy after Brexit

From GOAL report dated June 26:

« Brexit has driven a sharp drawdown in equities
The UK vote to ‘leave’ the EU has triggered a sharp drawdown in European and global equities. We have long argued that equities are stuck in a ‘Fat & Flat’ range given both elevated valuations and a lack of growth. The impact of Brexit on confidence and the ERP, as well as on European growth, increases the risk that we move downward in this trading range. We have highlighted risks of a correction in our recent GOAL – Global Strategy Paper No. 19 and strategies to mitigate this risk. A key concern remains the lack of diversification or availability of ‘hedges’ for equities as most safe assets, in particular bonds, remain expensive alongside equities.

Potential for further weakness & volatility in global equities We think equities will remain volatile and stay defensively positioned in our asset allocation (neutral equities over 3- and 12 -months, overweight cash over 3 months). While we think investors have been lightly positioned into the drawdown, we feel that due to policy uncertainty and lack of growth, risk appetite might remain low in the near term. However, a combination of further declines in valuations and positive growth/policy surprises are needed to stabilise equities within their ‘Fat & Flat’ range.

Lowdown on the drawdown
Comparing the current EURO STOXX 50 drawdown to history indicates that it might continue (most drawdowns have lasted more than a month), valuations might have to drop further and bonds have been less good hedges for equities. Gold and Yen performed best as ‘risk off’ hedges. »

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Great Video Interview of Piketty on Greece

Thomas Piketty : ceux qui cherchent le Grexit… par lemondefr

Unfortunatelly or fortunatelly the reporter who asks questions is completely in line with European commission’s dogmatic views. For a newspaper that claims to bring indepth analysis of economy and society, it’s a shame when one of his journalist only has cliches question to throw away.

Greece: Time to Worry a Little or to Rejoy ?

Well, the markets are heading into panic mode, again. Brace yourself ! Lots of opportunities will probably arise, but wait a little, that dust settles down before chasing quality stocks at discounted prices, because right now, the market is still expensive and most quality stocks trade at a premium…

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Grexit: important facts in images…

Courtesy of Exane BNP Paribas’economist team, the Grexit case in a nutshell, actually 2 charts that might help clarify some points. According the Exane, Grexit now has a 40% chance to materialize.

About the timeline for the coming summer…

Source: Exane BNP Paribas

Source: Exane BNP Paribas

And here are the scenarios in the event of Grexit:

Source: Exane BNP Paribas

Source: Exane BNP Paribas

Obviously, investors should think about ways to protect their portfolios, but they shoudl also raise cash and be prepared to seize investment opportunities.

3 questions on ECB – Barclays

Barclays’ equity research theme has published a note about the 3 questions investors may ask about ECB QE and its impact on market.

Source: Barclays

Source: Barclays


Here’s the summary:

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Recap: asset classes and ECB QE – Morgan Stanley

For those investors who did not have time to read all Morgan Stanley’s reports about ECB QE and its impact on asset classes, here’s the summary of the summary.

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UBS on QE and its impact on corporate bond market

From Suki Mann, FI strategist at UBS (bold statements from us):

« Corporate bond market capitulation: Is it coming?

We believe that if the ECB announces any kind of corporate bond buying this week, investors could well embark on a fairly aggressive grabfest ahead of the actual commencement of the programme.

Already bereft of supply, decent yield, spreads unchanged into the macro-headwinds; and, plenty of pent-up demand for paper as cash keeps rolling-in to the asset class, we think that the actual announcement could see a lurch tighter in spreads. That is, QE is not in the current price. Some think it is, we don’t.

How much can spreads tighten? The answer ultimately depends on the modalities of the program (size, duration, mix). »

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Morgan Stanley on « QE and beyond »

From Srikanth Sankaran & Shrina B. Poojara at Morgan Stanley fixed income research team:

« We maintain a constructive bias on credit heading into Thursday’s ECB meeting. Despite the outperformance of European credit in recent months, we do not think that QE upside is fully priced in. A 20-25bp compression in IG spreads is likely, should the ECB deliver.    

Sovereign QE is now our economists’ base case: Our economists’ base case now is €500 billion of government bond purchases and €100 billion of private sector asset purchases. In terms of timing, the complexity of designing a sovereign QE programme makes January 22 an ambitious start day. Announcement in January and execution in March is more realistic, they think. »

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JPMorgan: there is a better risk-reward in Eurozone equities

Here’s the summary of their views:

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Overall, falling oil prices are good news for European earnings

Say Morgan Stanley’s European equity strategists:

« We believe the fall in the oil price is set to translate into a significant boost for European corporate earnings. Energy accounts for around 10% of European earnings – and historical precedent suggest a 50% drop in the oil price should lead to a 25% fall in energy EPS. Earnings for chemicals, utilities and mining, which together account for a further 10% of European earnings, should also experience a net negative impact from lower oil prices. However, the remaining 80% of European corporate earnings should see a net boost of around 13% on our estimates, as lower material costs lead to higher gross margins. In aggregate, we estimate that even on conservative assumptions a 50% drop in the oil price should translate into a net boost of around 7% to European market-level EPS. »

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Europe equities are cheap, but for one (or two) reason(s)

Source: Goldman Sachs

Source: Goldman Sachs

This might look simplistic, but when you look for cheap equities around the world, Europe is not alone. Asia Pacific and even Japanese equities look interesting. Of course, currencies make equity investing a little bit more tricky when you look globally.

The problem with European equities is twofold: first, the debt crisis is far from over (public deficits and debts are astronomically high, economic and earnings growth are subpar and deflation is here); second, all hopes rely on the decision of the ECB to start buying government debt, which from a cautious investor standpoint is worrysome, all the most in a region where economic and political governance is inefficient.

Big Picture: earnings consensus figures in the world

Thanks to Deutsche Bank, this single page sums up the consensus view on equity markets around the world: what are the expectations for 2014 -> 2016, what were the revision rates by region/market/sector.

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Remember how the market was… like a month ago ?

That’s the « world » (European equity market as represented by the Stoxx Europe 600 index actually) on Oct 15, 2014 and on Nov 21, 2014…

Source: Factset

Source: Factset

On Nov 21st (yesterday):

Source: Factset

Source: Factset

As a reminder, volatility on Euro Stoxx 50 (much narrower index) was 28.76 on October 15 (it peaked for the year at 31.52 on the 16th of October). Now it’s 18.91.

In summary, the European stock market has gained 10.8% in a little bit more than a month, while volatility has declined by 34%.

Good reminder of Buffett’s favorite quote from Ben’s Graham: « Be fearful when everyone else is greedy; be greedy when everyone else is fearful ». Works all the time !

US investors’ sharp switch out of Europe gathers pace – Goldman Sachs

From report dated Nov 20, 2014:

« The latest US Treasury TIC data shows record outflows from European equities in September at USD27.4bn. The recent data have been volatile but generally very weak, with 3-month average net outflows of USD13bn per month. That pace of outflow by US investors is larger in absolute terms than that seen in the financial crisis period in late 2008 and into 2009. »

While some investors expected this would calm down, apparently that’s not really the case…  Lire la suite

A more favorable backdrop for risk assets – Barclays

On the back of slightly better global growth in 2015 and most importantly accommodative monetary policies, risk assets should prevail next year, says Barclays in its freshly published outlook. Attached is the summary per asset class, and some key introductory remarks to this 168 page document distributed to investors and clients. Enjoy!

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Is Europe the Next Japan ? (from Goldman)

Well, this question is far from new. Actually it was raised soon after the first tention in EZ sovereign bond market in 2010. As already mentioned on this blog, the theme of a balance sheet recession is rooted deep down the EZ economy. Unfortunatelly, the public and governments don’t seem to properly grasp the issu. But some people do, especially in Japan…  Lire la suite

Deflation in Europe: Unlikely but what if? – Credit Suisse

From Andrew Garthwaite and team at Credit Suisse (bold statements from the strategist):

« We put a 10-20% chance on Japanese-style deflation in Europe: We believe deflation is not falling CPI, but falling wages and falling property prices.  Lire la suite

What are the equity markets worth right now ?

From Bank of America Merrill Lynch (report date Nov 7)…

Source: Bank of America Merrill Lynch

Source: Bank of America Merrill Lynch

Here’s a focus on European equity market (through the Stoxx Europe 600 universe):

Source: Bank of America Merrill Lynch

Source: Bank of America Merrill Lynch


L’Europe et l’expérience japonaise – l’éclairage de Richard Koo

Les lecteurs assidus de ce blog connaissent Richard Koo – brillant économiste de Nomura qui a décrit les tenants et aboutissants de la crise financière actuelle en la comparant à l’expérience japonaise. Il était la semaine dernière invité d’un symposium organisé par AXA Investment Managers. Voici la vidéo de son discours. La présentation est accessible ici.

Morgan Stanley: attendre la fin du 2ème trimestre pour prendre du risque

Morgan Stanley recommande d’attendre la fin du 2ème trimestre pour accroître le niveau de risque des portefeuilles, en s’exposant plus sensiblement aux actions (secteurs à béta élevé, actions US exposées à la croissance mondiale et actions émergentes notamment). Lire la suite

L’Europe tacle le marché des crédit carbone

Mauvaise nouvelle pour le secteur des utilities. Le parlement européen a refusé hier une proposition de la Commission européenne réduire la situation de suroffre sur le marché des permis à émettre du dioxyde de carbone, provoquant une chute du cours des crédits carbone. Lire la suite

La BCE bientôt dans les pas de la Fed et de la BoJ ?

Source: Exane BNP Paribas

Source: Exane BNP Paribas

[cleeng_content id= »742030898″ description= »Plus d\’analyses et de commentaires à découvrir…  » price= »0.19″ t= »article » referral= »0.05″]Les économistes d’Exane BNP Paribas publient une note intéressante ce matin sur les effets de la politique de baisse du yen engagée par la Banque du Japon: l’expansion du bilan de la Banque du Japon a été efficace sur la parité du yen (-20% face à l’euro depuis le début de l’année – nota: cela explique aussi pourquoi certains pays européens, dont la France, peuvent emprunter à des taux si bas). Mais cela ne résoudra sans doute pas les problèmes de compétitivité sur le long terme (ces derniers relèvent plus de la qualité, de l’innovation et des savoir-faire, brefs de facteurs hors-coûts qui sont cruciaux pour permettre à une économie d’exporter davantage). Lire la suite

Ce qu’il faudrait pour que les actions montent de 20% – Citi

Un discours de prudence de rigueur après la hausse des marchés actions depuis un an ? Citi, qui a fait part d’une vision plutôt optimiste pour les actions européennes hier, a publié aujourd’hui son outlook pour le deuxième trimestre. Le graphique suivant a retenu notre attention… Lire la suite

En Europe, 35% des dépôts ne seraient ni éligibles ni couverts par aucune garantie

L’épisode chypriote a créé beaucoup de confusion dans l’esprit des investisseurs et du grand public, la faute en partie à de sérieux dysfonctionnements de la gouvernance européenne (et de la cacophonie habituelle en termes de communication). De fait, les dépôts bancaires ne sont pas tous égaux devant le droit. Lire la suite

Eurozone: la fin de la crise en septembre 2018…

Alors qu’aux Etats-Unis, Wall Street a battu la semaine dernière ses records de cotation d’avant la crise, il faudra vraisemblablement attendre septembre 2018 pour que cela arrive dans la zone euro… et encore faudra-t-il que la Bourse monte de 10% par an pour y parvenir… Lire la suite

Le pricing power sous l’angle du crédit – Morgan Stanley

Après leurs collègues du côté equity, les analystes crédit de Morgan Stanley ont publié deux listes de valeurs ayant un pricing power élevé et faible. Lire la suite

Deutsche Bank reste positif sur les actions et maintient un scénario de reprise mondiale

Après un mouvement  de baisse les prévisions de croissance de l’économie mondiale vont se stabiliser, offrant un environnement toujours favorable à l’investissement en actions, estiment les stratégistes de Deutsche Bank. L’indice Stoxx 600 pourrait, dans ces conditions, atteindre 315 points d’ici la fin de l’année (contre 294 points actuellement). Lire la suite

Henri de Castries inquiet pour l’Europe, défend sa vision très libérale

La conférence intitulée « Régulation du secteur financier et croissance » s’est ouverte vendredi dernier par une heure de quasi-monologue offerte à Henri de Castries, patron d’AXA (l’assureur étant l’un des sponsors de la conférence organisée par le groupe Les Echos). Lire la suite

Où sont les risques ? Où sont les opportunités ? L’avis des investisseurs – Citi

Citi a publié les résultats de sa dernière enquête auprès des investisseurs: la crise de la zone euro et les décisions politiques européennes sont les principaux facteurs de risque identifiés. Mais pour la majorité des gérants interrogés, les actions européennes et UK devraient afficher des performances supérieures à 5% d’ici la fin de l’année (30% voient un rebond de 10% et +). Lire la suite

Moins de dégradation sur les prévisions de résultats 2013 – Deutsche Bank

Source: Deutsche Bank

Source: Deutsche Bank

Deutsche Bank a observé moins de dégradation de prévisions de résultats pour les sociétés cotées en Europe au cours du mois écoulé (mi-février à mi-mars), avec une baisse de 0,8% des prévisions contre -1,5% au cours du mois précédent. La situation en Europe est toujours le reflet d’une dégradation de la conjoncture. Aux Etats-Unis, on n’a pas observé de détérioration des anticipations, expliquant l’écart de performance entre les deux régions.

Economie mondiale: de l’ombre à la lumière

L’année économique 2013 sera caractérisée par deux choses selon les économistes de Morgan Stanley: une reprise de l’activité globale vers un rythme de 4% au cours du second semestre, et la poursuite, voire l’intensification des politiques de soutien à l’activité de la part des banques centrales (aux Etats-Unis, le taux de chômage évoluera de manière irrégulière et ne tombera pas rapidement sous la barre des 7%). Lire la suite