Equity Strategy Research
A truly comprehensive approach, with research covering global sector, regional, and quantitative strategy including proprietary dividend models.
Contact Us for a trial.
Equity Strategy Team
Equity Strategy ResearchEquity Strategy Products: Absolute Strategy Weekly, Equity Strategy Quarterly, Trade Alerts.
Page 1: Next
Equity Strategy: Global Equities Unlikely to Sustain Gains in 2017
Economics: The real challenge for France lies ahead
Multi-Asset: Risk appetite challenges pro-cyclical narrative
Top Convictions on a 12-Month View
• Equities could underperform bonds as the business cycle disappoints
• USD may be lower a year from now, hurt by adverse real-yield differentials
Our quarterly Strategic Asset Allocation report provides a summary of how ASR views the prospects for financial markets over the next 12 months. It expresses our ‘core’ calls in terms of probabilities. This allows the ASR view to be compared directly with the Consensus as tracked in ASR’s quarterly Multi-Asset Survey.
On a 12-month view, we have become more worried about risk assets. Because of the tightening in US and Chinese monetary policy, we believe that the global business cycle will be weaker, not stronger, a year from now. We think that the improvement in global inventory-shipment conditions will soon be over, reducing the scope for pricing power and corporate earnings growth – and exposing the equity markets’ demanding valuations. This view contrasts with ASR’s Multi-Asset Survey which is anticipating a sustained global reflation trade.
Against this backdrop, we think that the pressure on US interest rates could be less than the market expects. We think US 10yr yields will remain range-bound, and are unlikely to breach the critical 3% level over the next 12 months (unless the ECB tapers aggressively). We worry that equities may underperform bonds should investors start to see weaker earnings growth and lose confidence in the current rich valuations. We also question how long the global Equity Risk Premium can resist upward pressure from the persistently high levels of global Policy Uncertainty. We believe investors will have to prepare themselves for higher equity volatility over the next 12 months.
Finally, we believe the USD could disappoint if the ECB tapers on the back of rising core eurozone inflation, resulting in a narrowing of real-yield differentials.
UK snap election expected on 8th June
The key points:-
• The governing Conservatives are likely to increase their majority at the expense of Labour (one estimate by psephologist Michael Thrasher suggested that current polls replicated at a general election would give the Conservatives a 140-seat majority)
• The Liberal Democrats could enjoy a revival in areas which voted Remain in last year’s Brexit referendum
• This could have the effect of creating an even more eurosceptic Conservative parliamentary party, as Tory MPs in Remain-majority constituencies lose their seats to the Lib Dems and a large new intake of pro-Leave MPs enter Parliament courtesy of Labour collapse in the majority-Leave North of England
• However, there is also a significant likelihood that, if Theresa May is able to enlarge her majority (currently just 17 seats), she will strengthen her personal authority, reduce the leverage of the hardcore eurosceptics in her party (about 60 MPs) and potentially increase the chances of either a softer Brexit and/or a lengthy transitional period in which the UK’s current membership terms are effectively extended beyond March 2019
• The election will also reset the electoral clock, easing the pressure to extricate the UK from the EU by June 2020 (the previous date of the next scheduled election), extending that notional deadline to June 2022, and potentially providing much-needed negotiating time to agree the post-Brexit relationship
This research report is issued by Absolute Strategy Research Ltd, which is authorised and regulated by the Financial Conduct Authority (“FCA”). Absolute Strategy Research Services Inc. is registered as an investment adviser with the US SEC, and is responsible for all communications and dealings with, and only with, US persons. The report is intended only for investors who are Eligible Counterparties or Professional Clients, as defined by MIFID and the FCA, and may not be distributed to Retail Clients.
Absolute Strategy Research Ltd does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security.
This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of any particular person who may read this report.
This research report provides general information only. The information contained was obtained from sources that we believe to be reliable but we do not guarantee that it is accurate or complete, and it should not be relied upon as such. Opinions expressed are our current opinions as of the original publication date appearing on this material only and the information, including the opinions contained herein, are subject to change without notice.
This research report may not be redistributed, retransmitted or disclosed in whole or in part, without the express written permission of Absolute Strategy Research Ltd.
© Absolute Strategy Research Ltd 2016. All rights reserved.
Absolute Strategy Research Ltd. 1-2 Royal Exchange Buildings, London, EC3V 3LF. Phone: +44 (0) 20 7073 0730 Fax: +44 (0) 20 7073 0732. www.absolutestrategy.com.
Absolute Strategy Research Ltd is registered in England and Wales. Company number 5727405. Registered Office: Salisbury House, Station Road, Cambridge