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Positioning for a seasonality boost
David Rickards has updated his equity risk premium estimates. The latest data
shows the risk premium for the S&P500 is 6.9%, which is 2.37 standard
deviations above the long term average. To put this in perspective, the risk
premium has only risen above 2 standard deviations four times since 1973.
While equities are clearly cheap, David still believes we are unlikely to see
sustained upward momentum in global equities until there is a 50 to 100 basis
point sell-off in bond yields. That said, for medium to long term investors, he
recommends some increase in equity exposure, and a shift to a less defensive
strategy over the next two months to position for the seasonal uplift in returns
that typically occurs between November and April.
Based on returns over the last 20 years, he found that European markets tend to
have the worst month in September, with seasonal returns turning more positive
in the US and Europe in October. Emerging Markets tend to lag developed, with
returns in US dollar terms typically turning more positive in November.
David argues that when the equity risk premium is high, growth is more likely to
outperform value as a stock selection factor. This likely reflects the fact that
many apparently cheap stocks are caught by the “value trap” when economic
conditions are weakening (and the risk premium is high or rising).
In terms of country selection, the latest update of the Macquarie Country Alpha
Model shows the regions with the strongest momentum are North America and
Asia, while European markets tend to rank higher in terms of value.
Among the top 10 equity markets, the Country Model favours the UK, China and
France, with the lowest ranking countries being Switzerland, Japan and Canada.
Outside major markets, and given the region’s high equity risk premium, he
favours emerging Asia, with the top ranking countries in this region being Korea
and Indonesia. Despite the apparent value on offer, David remains cautious on
smaller European countries such as Spain and Italy
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Positioning for a seasonality boost
David Rickards has updated his equity risk premium estimates. The latest data
shows the risk premium for the S&P500 is 6.9%, which is 2.37 standard
deviations above the long term average. To put this in perspective, the risk
premium has only risen above 2 standard deviations four times since 1973.
While equities are clearly cheap, David still believes we are unlikely to see
sustained upward momentum in global equities until there is a 50 to 100 basis
point sell-off in bond yields. That said, for medium to long term investors, he
recommends some increase in equity exposure, and a shift to a less defensive
strategy over the next two months to position for the seasonal uplift in returns
that typically occurs between November and April.
Based on returns over the last 20 years, he found that European markets tend to
have the worst month in September, with seasonal returns turning more positive
in the US and Europe in October. Emerging Markets tend to lag developed, with
returns in US dollar terms typically turning more positive in November.
David argues that when the equity risk premium is high, growth is more likely to
outperform value as a stock selection factor. This likely reflects the fact that
many apparently cheap stocks are caught by the “value trap” when economic
conditions are weakening (and the risk premium is high or rising).
In terms of country selection, the latest update of the Macquarie Country Alpha
Model shows the regions with the strongest momentum are North America and
Asia, while European markets tend to rank higher in terms of value.
Among the top 10 equity markets, the Country Model favours the UK, China and
France, with the lowest ranking countries being Switzerland, Japan and Canada.
Outside major markets, and given the region’s high equity risk premium, he
favours emerging Asia, with the top ranking countries in this region being Korea
and Indonesia. Despite the apparent value on offer, David remains cautious on
smaller European countries such as Spain and Italy
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