What is the key investment message overnight? With only a handful of weeks left in 2014, many questions which are unresolved for the year have become issues for investors in 2015. These include can the US economy lift the rest of world when the latter’s domestic demand remains anaemic ? Given high valuations, is it best to be in defensive or cyclical sectors? Do emerging economies or advanced economies offer superior returns for investors? Should investors have any exposure to historically expensive government bonds? On many of these fronts, even though the US Fed is stepping back from the additional stimulus button, major regional central banks have indicated to investors that there will be no lack of surprises, as additional support pours into underperforming economies. Will this help? Only if the demand moderation is cyclical, if it is structural, as is the case in China, the stimulus will prove to be unsustainable and wont lift growth to recent levels. This is where margins become important for investors, as US margins have had the fastest recovery in history and are already at peak levels, whereas European margins are -30% below previous peaks. European valuations (12x) and expected earnings (10% in FY15) are superior to the US’s (17x and +8%) and one has to wonder at what point will relative valuations and superior EPS reassert themselves over tail risk events. Regards, Matt Sherwood Head of Investment Markets Research
Posted on: Mon, 24 Nov 2014 00:06:49 +0000
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