Global Equities Macro & Market

Transcription

1 \\ Global Equities Macro & Market \\\\ Bank of Cyprus Wealth Management Forum 20 January 2016 John Botham Product Director This presentation is for Professional Clients in Cyprus only and is not for consumer use. Please do not redistribute.

2 Contents A brief review of 2015 View of 2016 Conclusions 2

3 2015 contribution to returns Contribution to 2015 total returns (% pt) EPS Change PE Re-Rating Dividends Total Return Index MSCI Japan MSCI Europe MSCI USA MSCI UK MSCI AC Asia ex Japan MSCI Emerging Markets Source: MSCI, IBES, Morgan Stanley Research. Analysis done on change over 31 December 2014 to 31 December

4 Significant sector performance divergence MSCI AC World sector total returns, local currency (%) in Cons Staples Cyclical Health Care Cons Discr Defensive IT Telecoms MSCI AC World Industrials Financials Utilities Materials Energy Source: Datastream as at 4 January

5 Global equity market valuations MSCI World index Trailing PE (x) An 8% premium to long-term average Long-term average Source: Datastream as at 4 January

6 Major market consensus earnings forecasts A recovery in 2016? Global equity market IBES consensus earnings forecasts FY 2015 and 2016 (% change) MSCI AC World MSCI World MSCI EM US Japan Europe ex UK Asia Pac ex Jp UK Source: Datastream as at 4 January

7 Long term returns versus starting valuations Average annual 10-year return (%) y = -0,748x + 24,857 R² = 0, Starting year PE (x) Source: Lazarus Partnership as at 28 August

8 M&A activity Supportive for equity markets M&A as % of total market cap. (lhs) and MSCI World index (rhs) M&A as % total mkt cap MSCI World Source: Minack Advisors as at 14 September

9 The rate rise The market tends to perform well, before and after Median monthly return around the 7 main US Fed Tightening Cycles (local currency indices, since 1975, %) Number of months before and after the start of main Fed Target Rate tightening cycles Global US UK Europe Source: ASR Ltd./Datastream as at 15 August

10 Globally, cyclicals may appear cheap relative to defensives Book value ratio of economically cyclical sectors versus defensives Οκτ 80 Οκτ 85 Οκτ 90 Οκτ 95 Οκτ 00 Οκτ 05 Οκτ 10 Οκτ 15 Source: Invesco and Datastream as at 31 December Data shows price/book value ratio between 4 cyclical sectors (oil, industrials, basic materials, consumer discretionary) against four defensive sectors (utilities, consumer staples, pharmaceuticals, telecoms). 10

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12 Energy Large-capitalisation energy stocks 1 Relative price to book ratios 1952 to September ,0 2,5 2,0 Shale oil has altered the long term supply/demand balance Breakdown of OPEC market discipline Demand continues to be strong 1,5 1,0 0,5 0, Year Recessions Relative Price-to-Book Current level Source: Corporate reports, Empirical Research Partners Analysis Empirical Research Partners Analysis as at September Universe = US. 1 Equally-weighted unwinsorised data excluding pipeline stocks. 12

13 Banks Earnings remaining resilient Global banks continue to underperform 0,90 0,85 0,80 0,75 0,70 0,65 0,60 0,55 0,50 0, AC World Banks Relative PBV 1,2 1,1 1,0 0,9 0,8 0,7 0,6 0,5 despite strong relative earnings performance AC World Banks Relative Performance Sources: MSCI, IBES, Morgan Stanley Research as at 4 January RHS Chart: 25 November 2010 =

14 Market breadth GS breadth index December yr average = 35 σ = 28 S&P index($) -0.73% Top 10 contributors +3.34% 40 Rest of market -4.02% Source: Invesco Perpetual /Goldman Sachs as at 31 December GS Market Breadth index where 1 = narrow. 14

15 European earnings A double dose of crisis meant Europe s earnings cycle was much delayed MSCI EMU and S&P 500: 12mths forward EPS 1 US market now trading at a peak multiple of peak earnings Οκτ 01 Αυγ 02 Ιουν 03 Απρ 04 Φεβ 05 Δεκ 05 Οκτ 06 Αυγ 07 Ιουν 08 Απρ 09 Φεβ 10 Δεκ 10 Οκτ 11 Αυγ 12 Ιουν 13 Απρ 14 Φεβ 15 MSCI EMU Index - 12m Fwd EPS (Euro, lhs) Δεκ European profits show better momentum, assisted by Weaker currency Domestic economic recovery Operating leverage Scope for the Europe to outperform US in 2016? Source: Thomson Datastream as at 31 December EPS = Earnings Per Share. Based on consensus estimates provided by Thomson Datastream as at 31 December

16 China matters but 19% world population 30% world industrial production 13% world exports 45% world copper demand 17% world GDP* 10% world imports $3.5trn Forex reserves Source: Invesco Perpetual, Datastream, Population Reference Bureau and BofA Merrill Lynch as at 19 October *on a PPP basis (purchasing power parity). $ = US$. 17

17 Conclusion More than the usual uncertainties. The market will have to climb a wall of worry Investor interest currently narrowly focussed As at 15 January

18 Important information This presentation is for Professional Clients in Cyprus only and is not for consumer use. Please do not redistribute. The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Past performance is not a guide to future returns. Where John Botham has expressed opinions, they are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco Perpetual investment professionals. Where securities are mentioned in this document they do not necessarily represent a specific portfolio holding and do not constitute a recommendation to purchase, hold or sell. Issued in Cyprus by Invesco Global Asset Management Limited, George s Quay House, 43 Townsend Street, Dublin 2, Ireland, which is regulated in Ireland by the Central Bank of Ireland. 19