Author Archive

M&A buoyant so far this year

So far this year equity returns have been fairly disappointing and market volatility has significant increased compared with 2017. However, disappointment has been driven neither by poor economic conditions nor by a worsening of company fundamentals, and mergers and acquisitions (M&A) remain supportive. The acceleration of M&A in some regions illustrates that investor sentiment is […]

Japanese equities bolstered by the Bank of Japan

Japanese equities received net inflows in March. Nevertheless, foreigners were net sellers – with the highest monthly net foreign redemptions in the past 18 months. Thanks to the Bank of Japan’s (BoJ) purchases of Exchange Traded Funds (ETFs), there have still been net inflows into Japanese equities despite the strong foreign outflows. The BoJ is […]

Equity markets in a new regime

  The global equity market sell-off of late January and early February was rather unusual in a number of respects. Equity and bond prices declined simultaneously in the recent market sell-off, a pattern that has only occurred in a quarter of the last 25 equity market sell-offs. The recent sell-off is far above the levels […]

Japan: a year of normalisation – still appealing, but risk-reward is not as good as before

A number of concerns hang over the outlook for Japanese equities in 2016. The first phase of Abenomics had only mixed success, and plans for the second phase are still vague. Although there are some encouraging signs, the economy’s trajectory remains weak. Earnings have been resilient, but this may not be sustained. Japanese equities saw […]

Share buybacks: a powerful driver that looks set to gain even more momentum

Share buybacks can involve huge sums of money. Apple, the world’s largest-capitalisation company at $748bn, repurchased 6% of its capital in 2014. That works out at a record buyback worth $46bn. In a world where top-line growth is expected to be lacklustre in 2015, the temptation is very alluring for company boards to boost earnings […]

Developed world equities and the earnings cycle

Equity markets in developed economies (US, Europe and Japan) have staged impressive rallies since September 2011, gaining around 70% (with dividends reinvested), which equates to annual returns averaging nearly 25%. With the Fed’s monetary policy gradually reverting to normal as 2014 unfolds and with fears being expressed about emerging markets, questions are being asked about just how sustainable the ongoing rally on equity markets is. Earnings […]

Japan – the return of a forgotten giant

The TOPIX share index is up 34% for the year to date. This powerful rally does beg two questions though: How much more upside potential do Japanese shares have? Does this mean Japan will at long last throw off the shackles of deflation in the longer run? After several very disheartening years, Japanese shares have […]

Abenomics and the revival of Japan

The cornerstone of our 2013 scenario for developed equity markets is a shift in risk factors during the year, which would make the business cycle and the earnings cycle increasingly relevant. This shift is possible in the light of expectations of an economic recovery in the US and the resilience of emerging economies, while Europe […]

Double digit earnings growth expected in 2013, but can they surprise on the upside?

On average, the elasticity of S&P 500 earnings relative to US nominal GDP growth has been 4.2 since 1988. In a blue sky 2013 economic scenario, where US nominal GDP growth would bounce back to 4.25% in 2013, this would lead to potential earnings growth of 17%. This would be our upper limit for potential […]

Divergence between US and European equities

How Europe’s equities perform has always tended to be quite closely connected to what happens to share prices on Wall Street. Since 2011 though, the two seem to have been going their separate ways. European bourses are being penalised by top-heavy cyclical exposure and underexposure to technology, translating into much greater variability in profit margins. […]

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