11 QUESTIONS FOR EQUITY INVESTORS IN 2017

Transcription

1 Global Equities 11 QUESTIONS FOR EQUITY INVESTORS IN 2017 January 2017 For investment professionals only. Not for further distribution.

2 The 2 nd Longest US Bull Market In History Could This Be The Record Breaker? REGIONAL RETURNS March 2009* December S&P 500 MSCI Europe MSCI Emerging Markets MSCI Japan The Death of Equities? +291% Index Level (100 = 3/9/2009) % +121% +110% Past performance cannot guarantee future results. *Begins on March 9, 2009 which was the low point for the S&P 500 during the Global Financial Crisis. Source: Factset, Standard & Poor s, MSCI. Returns in USD. 2

3 The Hope for Growth 1 Will Fundamentals Back Up Improved Sentiment? As at 30 November 2016 EMPLOYMENT GROWTH BY REGION RATES AND EARNINGS WHERE NEXT? 4% Japan EU US Most bullish Year over Year % Growth 3% 2% 1% 0% -1% -2% -3% -4% -5% Falling Rates Rising Earnings Falling Rates Falling Earnings? Higher Rates Rising Earnings Higher Rates Falling Earnings Most bearish Sources: Ministry of Health, Labour & Welfare, Statistical Office of the European Communities, Bureau of Labor Statistics, Haver Analytics, Morgan Stanley Research. 3

4 The Hope for Growth 2 Can Corporate Earnings Stage A Recovery? As at 31 December 2016 REGIONAL PROFITS (EPS IN USD) In USD Since Last Cycle Peak (October 2007) 140 Emerging Markets Europe ex UK Japan United Kingdom United States ? Source: FactSet Economics. 4

5 Can Valuations Hold In a Goldilocks World? As at 30 November 2016 DEVELOPED VS EMERGING MARKETS 12 Months Forward Price to Earnings Ratio (P/E) January November 2016 Price to Earnings Ratio MSCI World Long Term Average 16.2x MSCI EM MSCI World EM LT Average World LT Average EQUITY AND BOND VALUATIONS PE NTM / Implied PE U.S. Treasury 10-Year 1/Yield German Bund 30 Year 1/Yield S&P 500 Japan TOPIX MSCI Germany 9 7 MSCI EM Long Term Average 11.8x '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 Past performance is not a reliable indicator of future performance. Sources: FactSet, MSCI 5

6 Politics and the Protest Vote A Shift To Fiscal Stimulus, A Shift Away From Globalisation? As at 30 September 2016 WALL STREET BOOM, MAIN STREET BUST Q % 52% Wages as % of GDP Equal-Wtd Equity and Bond Blend* 30000% 25000% NAICS U.S. Wages as % of GDP 50% 48% 46% 44% 20000% 15000% 10000% Cumulative Return 42% 5000% 40% % Sources: FactSet, Haver, Standard & Poor s Bureau of Economic Analysis, Federal Reserve Board, Tax Policy Center and Citizens for Tax Justice. *Equal-weighted total return of U.S. equities (S&P 500) and U.S. 10-year government bonds. 6

7 Trump Tantrum Making Value Great Again As at 31 December 2016 MSCI WORLD VALUE - MSCI WORLD GROWTH TOTAL RETURNS (%) Value - Growth Mean -1 St Dev +1 St Dev 85 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% 31 Dec Feb Feb Dec 2016 Past performance is not a reliable indicator of future performance. Sources: MSCI, Total return indices used for MSCI Value and MSCI Growth 7

8 Is Economic Activity Really On The Rise? Regional Purchasing Managers Index (PMI), as at 30 November 2016 USA PMI Services Manufacturing JAPAN PMI 62 Services Manufacturing EURO AREA PMI Services Manufacturing CHINA PMI Services Manufacturing Sources: Haver Analytics, Markit 8

9 US Inflation Inflection How Far, How Fast? As at 30 September 2016 US AND EUROPEAN EMPLOYMENT AND INFLATION FUNDAMENTALS Unemployment Rate 13% 12% 11% 10% 9% 8% 7% 6% 2016 Q3 Fed Target X 2012 Q Q1 5% -1% 0% 1% 2016 Q3 2% 3% 4% Inflation (Total CPI, Y/Y) Eurozone US LOW AND SLOW: PRIOR FED RATE HIKING CYCLES VS. PROJECTION OF CURRENT CYCLE 4.5% Cumulative Increase in Fed Target Rate 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Mar-83 Jan-87 Apr-88 Feb-94 Jun-99 Jun-04 Dec Number of Months from Beginning of Hike FOMC Projection* Source: Evercore ISI, FactSet 9

10 European Equities Inflection or Relief? As at 30 September 2016 EUROPEAN-US RELATIVE P/B AS A LEAD INDICATOR Europe vs US: Sector-adjusted P/B Average Past performance is not a reliable indicator of future performance. Source: FactSet. 10

11 Japan The Third Arrow or Just Another Cycle? As at 31 December 2015 TOTAL SHAREHOLDER RETURNS OF ALL LISTED COMPANIES (On A Common Stock Basis (Est for )) Dividends Share buybacks trn Fiscal Year Past performance is not a reliable indicator of future performance. Source: Nomura as at 30 November Note: Based on companies with revenues of more than US$10 billion. 11

12 Emerging Markets Time to Buy The Doom (Again)? EMERGING MARKETS PAIN SINCE 2010 MORE RISK FOR LESS RETURN VERSUS DEVELOPED MARKETS (1 January September 2016, in USD) 20 Portfolio Performance Annualised Return (%) S&P 500 MSCI FM (FRONTIER MARKETS) MSCI JAPAN MSCI WORLD MSCI EM ASIA MSCI EM (EMERGING MARKETS) MSCI EUROPE MSCI PHILIPPINES MSCI INDONESIA MSCI EM EMEA MSCI EM LATIN AMERICA Volatility Standard Deviation (%) of Returns Past performance is not a reliable indicator of future performance. Source: Zephyr Style Advisor. 12

13 Important Information Source for MSCI data: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. This material, including any statements, information, data and content contained within it and any materials, information, images, links, graphics or recording provided in conjunction with this material are being furnished by T. Rowe Price for general informational purposes only. The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request. It is not intended for distribution to retail investors in any jurisdiction. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price. The material does not constitute a distribution, an offer, an invitation, recommendation or solicitation to sell or buy any securities in any jurisdiction. The material has not been reviewed by any regulatory authority in any jurisdiction. The material does not constitute advice of any nature and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested. The views contained herein are as of January 2017 and may have changed since that time. Australia Issued in Australia by T. Rowe Price International Ltd. (ABN ), Level 50, Governor Phillip Tower, 1 Farrer Place, Suite 50B, Sydney, NSW 2000, Australia. T. Rowe Price International Ltd. is exempt from the requirement to hold an Australian financial services licence in respect of the financial services it provides in Australia. T. Rowe Price International Ltd. is authorised and regulated by the UK Financial Conduct Authority under UK laws, which differ from Australian laws. For Wholesale Clients only. Canada Issued in Canada by T. Rowe Price (Canada), Inc. T. Rowe Price (Canada), Inc. s investment management services are only available to Accredited Investors as defined under National Instrument T. Rowe Price (Canada), Inc. enters into written delegation agreements with affiliates to provide investment management services. DIFC Issued in the Dubai International Financial Centre by T. Rowe Price International Ltd. This material is communicated on behalf of T. Rowe Price International Ltd. by its representative office which is regulated by the Dubai Financial Services Authority. For Professional Clients only. EEA Issued in the European Economic Area by T. Rowe Price International Ltd., 60 Queen Victoria Street, London EC4N 4TZ which is authorised and regulated by the UK Financial Conduct Authority. For Professional Clients only. Hong Kong Issued in Hong Kong by T. Rowe Price Hong Kong Limited, 21/F, Jardine House, 1 Connaught Place, Central, Hong Kong. T. Rowe Price Hong Kong Limited is licensed and regulated by the Securities & Futures Commission. For Professional Investors only. Singapore Issued in Singapore by T. Rowe Price Singapore Private Ltd., No. 501 Orchard Rd, #10-02 Wheelock Place, Singapore T. Rowe Price Singapore Private Ltd. is licensed and regulated by the Monetary Authority of Singapore. For Institutional and Accredited Investors only. Switzerland Issued in Switzerland by T. Rowe Price (Switzerland) GmbH ("TRPSWISS"), Talstrasse 65, 6th Floor, 8001 Zurich, Switzerland. For Qualified Investors only. USA Issued in the USA by T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, MD, 21202, which is regulated by the U.S. Securities and Exchange Commission. For Institutional Investors only. T. ROWE PRICE, INVEST WITH CONFIDENCE and the Bighorn Sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc. in the United States, European Union, and other countries. This material is intended for use only in select countries. GCC