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India Equity Research Reports, IPO and Stock News
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Global Equity Strategy
The World is Not Broken
Inflation is by no means all bad
We expect 2011 will be a broadly positive equity return environment, bolstered
by still expansionary monetary policies and still accelerating economic growth.
Globally, valuations (12x-13x fwd PER’s) are not challenging. Crucially, equities
appear to be discounting bond yields well above current levels. Hence,
continuation in the sell off in bonds on the back of inflation concerns should
boost equity returns as funds flow from bonds to equities accelerate.
Investors appear to have reacted recently to the change in the “delta” of growth –
developing to developed, which is now widening .Emerging economies and their
equity markets were the first to recover after the lows following the GFC, leading
to a positive growth delta. This cycle has now shifted to the developed world, as
continued upgrades to the EPSg forecasts for key developed markets - US,
Germany, UK, France, as examples, are now in clear view, fuelled by a strong
and increasingly synchronised manufacturing upswing.
Conversely, emerging markets’ growth may now be stalling (i.e. the delta of
growth flat to negative), given slowly tightening monetary and other restrictive
policies. We note however that the valuation differential between markets –
developed and developing, is narrow. Thus the respective earnings
revision trends should drive equity markets returns in the next 3-6 months.
Developing to developed fund flow may be short lived
Any growth slowdown seen in China this year we believe is likely to be
moderate, with authorities likely to succeed only in taking the edge off inflation.
The key implication we believe is that current portfolio funds flow from Asian
markets (and other emerging markets for that matter) to developed markets
should prove temporary and tactical in nature, with the potential to reverse in 2H
2011. If our analysis is correct, the catalyst for this reversal is likely to be the
valuation” gap” that opens up between developing and developed markets,
particularly the US, that would entice a reversal of fund flows.
Whilst there are threats from overheating commodity markets, particularly oil, on
the back of Middle East instability, we believe supportive global monetary policy
will continue to dominate. The recovery in the developed world is slowly
broadening, by both country and sector, with the laggards increasingly the
minority. Cheap currencies, cheap and available debt, and strong productivity
growth are increasingly the drivers of a strong global profit cycle.
Stocks from our global universe that should benefit from these
developments include - BHP Billiton (BHP AU, A$46.55, Outperform), China
Shipping Development (1138 HK, HK$8.50, Neutral), Yara (YAR NO, kr290.00,
Outperform), PTT Exploration & Production (PTTEP TB, Bt176, Outperform ),
Bukit Asam (PTBA IJ, Rp19,850, Outperform), Legrand (LR FP, €30.29,
Outperform), Oracle (ORCL US, US$33.03, Outperform), KBR (KBR US,
US$35.49, Outperform), United Parcel Service (UPS US, US$73.46,
Outperform), Manpower (MAN US, US$66.34, Outperform), Sulzer (SUN SW,
CHF142.10, Outperform), Syngenta (SYNN VX, CHF309.00, Outperform).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Global Equity Strategy
The World is Not Broken
Inflation is by no means all bad
We expect 2011 will be a broadly positive equity return environment, bolstered
by still expansionary monetary policies and still accelerating economic growth.
Globally, valuations (12x-13x fwd PER’s) are not challenging. Crucially, equities
appear to be discounting bond yields well above current levels. Hence,
continuation in the sell off in bonds on the back of inflation concerns should
boost equity returns as funds flow from bonds to equities accelerate.
Investors appear to have reacted recently to the change in the “delta” of growth –
developing to developed, which is now widening .Emerging economies and their
equity markets were the first to recover after the lows following the GFC, leading
to a positive growth delta. This cycle has now shifted to the developed world, as
continued upgrades to the EPSg forecasts for key developed markets - US,
Germany, UK, France, as examples, are now in clear view, fuelled by a strong
and increasingly synchronised manufacturing upswing.
Conversely, emerging markets’ growth may now be stalling (i.e. the delta of
growth flat to negative), given slowly tightening monetary and other restrictive
policies. We note however that the valuation differential between markets –
developed and developing, is narrow. Thus the respective earnings
revision trends should drive equity markets returns in the next 3-6 months.
Developing to developed fund flow may be short lived
Any growth slowdown seen in China this year we believe is likely to be
moderate, with authorities likely to succeed only in taking the edge off inflation.
The key implication we believe is that current portfolio funds flow from Asian
markets (and other emerging markets for that matter) to developed markets
should prove temporary and tactical in nature, with the potential to reverse in 2H
2011. If our analysis is correct, the catalyst for this reversal is likely to be the
valuation” gap” that opens up between developing and developed markets,
particularly the US, that would entice a reversal of fund flows.
Whilst there are threats from overheating commodity markets, particularly oil, on
the back of Middle East instability, we believe supportive global monetary policy
will continue to dominate. The recovery in the developed world is slowly
broadening, by both country and sector, with the laggards increasingly the
minority. Cheap currencies, cheap and available debt, and strong productivity
growth are increasingly the drivers of a strong global profit cycle.
Stocks from our global universe that should benefit from these
developments include - BHP Billiton (BHP AU, A$46.55, Outperform), China
Shipping Development (1138 HK, HK$8.50, Neutral), Yara (YAR NO, kr290.00,
Outperform), PTT Exploration & Production (PTTEP TB, Bt176, Outperform ),
Bukit Asam (PTBA IJ, Rp19,850, Outperform), Legrand (LR FP, €30.29,
Outperform), Oracle (ORCL US, US$33.03, Outperform), KBR (KBR US,
US$35.49, Outperform), United Parcel Service (UPS US, US$73.46,
Outperform), Manpower (MAN US, US$66.34, Outperform), Sulzer (SUN SW,
CHF142.10, Outperform), Syngenta (SYNN VX, CHF309.00, Outperform).
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