Investment Desk Bulletin

06 September 2016

Equity Markets: Past, Present and Future

IDB 07 09 16

By Roger Jones

The summer recess is over and the IDB returns by revisiting global equities; reflecting on the year so far, the current climate and what we should expect for the rest of the year.

- Headline risks such as the collapse in oil prices and Brexit have been very visible this year, but despite these episodes measures of volatility have trended lower and both developed and Emerging Markets have delivered positive returns year to date, only Japanese and European markets have lagged behind.

- Equity market returns have not been driven by company earnings growth, in fact over the period, earnings expectations have been consistently revised lower. What we have seen is equity markets increasingly determined by macroeconomic factors, principally central bank liquidity, falling government bond yields and currency moves. It seems likely that future equity market gains will need to be inspired by earnings growth as these other drivers become stretched.

- Looking forward, the fundamental and sentiment indicators offer a mixed picture of equity market prospects. Sentiment indicators remain supportive, but at the same time economic growth forecasts have been marked lower.

- To navigate this environment we continue to favour stock specific investments in companies that offer solid growth. We prefer companies with good earnings viability, the potential to improve profitability with self-help and quality franchises. 

Please click here to view the presentation.