Summary quotes from a note dated Dec 1st: Continuer la lecture de « Merrill Lynch’s X Asset Views 2018: Higher, but Harder »
Here are the key reasons provided by JPMorgan’s strategists Mislav Matejka, Emmanuel Cau, Prabhav Bhadani and Aditi Balachandar in a note dated Dec 4:
« 1) Growth momentum might have peaked, but activity is still likely to remain above trend. Earnings are likely to show further robust improvement . With 2% Eurozone real GDP growth projection, 10% EPS growth looks reasonable. This might make ’18 the second year in a row without EPS disappointments .
2) Central bank tightening is still in early stages , with US real policy rate outright negative at present. None of the last 8 downturns started with real rates below 2%. Furthermore, any inflation pickup would act to reduce real rates further. Yield curve is unlikely to invert until at least 2H, and crucially, stocks never peaked before the yield curve would get outright inverted . Finally, if equities were to roll over, we find it very unlikely that Fed will persevere with hikes – the central bank put is still in place.
3) Granted, equity multiples do not look cheap in absolute terms, but relative to both bonds and to credit, we find equities continue to offer an almost 300bp valuation gap, and this is just to get to the fair value.
Equities score the best when we consider prospective total returns for ’18 that other assets offer: according to JPM, Euro HY credit should deliver +1%, HG credit -1%, Euro Bonds -2% and cash -0.4%. Hardly inspiring, in our view. »
As a reminder, JPMorgan expects global real GDP growth to be 3.2% in 2018, with US at 2.2%, Eurozone at 2.1%, Japan at 1.4%, UK at 1.6% and China and EM at 6.5% and 4.5% respectively.
Earnings should be a key driver for markets, with 2018 « could be a second year in a row where earnings do not see downgrades. »
Consensus (IBES) expects EPS to grow 9% in Europe next year (thanks to IT, Financials and Industrials), 11.8% in the US (with Energy, Materials, Financials, IT), 12.7% in EM (with Healthcare, Discretionary and IT in the driving seat). Japan should be much slower at +3.1% (due to a -11.3% drag in Industrials).
One of the key questions next year will be the potential impact of the tax reform in the US on listed companies. Here are some simulation ran by JPMorgan:
Valuation is not going to play a major role in equities return, since P/E multiple are not cheap on a global basis. But valuation is relatively more attractive than other asset classes.
Key risks to this rather optimistic scenario: « growth disappointment lead by US recession, Credit dislocation in HY or in China, Eurozone politics and too abrupt bond repricing. »
Overall, JPMorgan expects 7% return for European equities (MSCI Europe) and 5% for UK equities (FTSE 100). Underlying assumptions for Europe are 7% EPS growth next year, P/E multiple of 15x which puts the MSCI Europe at 1,720 points end-2018.
In terms of regions, JPMorgan is Overweight Eurozone, and Japan, Neutral EM and US, Underweight UK and RoW.
Goldman recommends investors to « remain pro-risk » going into 2018, meaning overweight equities, be neutral on credit and underweight bonds. Continuer la lecture de « Remain Pro-Risk – Goldman Sachs »
« Global earnings look set to deliver double digit growth this year, at 12%, the best since 2010. The strength was broad based, with all the key regions contributing, and largely driven by Cyclicals and commodities. As base effects are turning less favorable, the question is whether earnings will remain a support for equities into 2018. »
This is the opening statement and a rather bullish intro to a report published today by JPMorgan’s strategists Mislav Matejka, Emmanuel Cau, Prabhav Bhadani and Aditi Balachandar. Continuer la lecture de « JPMorgan Expects Double Digit Earnings Growth in 2018 Globally »
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).
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 »
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 ? »