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
Since the global financial crisis (GFC), a number of trends have been worrying investors : aging demographics in both developed and emerging countries, increase of income inequality, decline in productivity growth, lack of investment from the corporate sector, and the slowdown of global trade.
One of the latest publication on X-asset strategy comes from Morgan Stanley and the message is pretty grim:
« Our cycle indicators across DM have stalled, pointing to rising risks of a shift from ‘expansion’ to ‘downturn’. The dilemma is that this peak has characteristics of both ‘true’ and ‘false’ turns. We explore our cycle checklist. »
A clever question raised by strategist at Nomura, and here are the summary of their answers… Enjoy
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. »
Excerpt from the latest GOAL publication from Goldman Sachs… I’m just picking a couple of paragraphs that give a good understanding of how difficult it is to do proper asset allocation and not be weary of losing it all when markets are distorted by central banks and the prospects for growth and inflation are dull…
The bank sees 7% YoY EPS growth for S&P 500 in 2017… but this will probably depend on the global macro picture which is not very comforting right now.
« Low global bond yields are pressuring US Treasury yields, while inflation outlooks are muted and the Fed appears on hold with rate hikes. All of these points favor high dividend yields »… Makes sense although this is massively pushing investors into the most expensive territories of equity markets !
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
« When people jump into stocks even though they know valuations are high… it’s a bubble ». Well at least that’s pretty clear. Interesting interview from famed Prof Shiller.
Well, another broker, another view on how investors in Europe currently assess the financial markets right now… from Morgan Stanley, here are the summary of their « Investment Seminar »…
If you don’t know what Net Neutrality is, look at this Jon Oliver video: it’s both serious and very funny, but still very serious… So watch and learn !
Here’s the summary of their views:
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.
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.
Goldman Sachs regularly updates a list of the most owned stocks by hedge funds. Apple, Actavis (involved in M&A deal), Facebook, AIG, Allergan are the top 5… The 45 other names are just a click away…
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
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!