Edison Strategy

Edison’s corporate strategy research is designed to keep senior management aware of recent economic developments and capital market activity through regular written updates, webcasts and face-to-face meetings.


Alastair George

Alastair George

Strategic Insight blogMore

If you think it is quiet… it is.

In June we highlighted the low level of volatility in global equity markets. This low volatility regime has continued through the summer and, as Exhibit 1 shows, now represents a dramatic and sudden break with 2016. For the Datastream developed markets index, if measured by the percentage of days with a greater than 25bps close-to-close daily move, the summer of 2017 represents the quietest period for developed markets since inception of the index in 1973. Investors should perhaps consider that market volatility is on average 50% above current levels when building portfolios for the longer-term.


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Illumination: Equity strategy and market outlook September 2017
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In this month’s strategy piece, Alastair George believes resilient forecasts for profits growth in 2017 keep the equity bears at bay in the short term. Though a modest degree of weakness in consensus earnings forecasts has appeared recently, earnings growth for developed markets is still forecast to be close to 10% in 2017. However, valuations across credit and equity markets highlight the need for caution for the medium term. Risk premia remain, in our view, compressed by central bank policy and are at levels that are unusually low on a historical basis. For the euro, it is perhaps a Goldilocks era as the strength of the currency taps the brakes on exporting nations, allowing other eurozone members, where there is less inflationary pressure, to remain beneficiaries of ultra-loose monetary policy for longer. We expect the ECB to aim to maintain the euro close to current levels. We continue to believe portfolios should be cautiously positioned.
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Equity strategy and market outlook August 2017
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In this month’s strategy piece, Alastair George believes that the record levels of corporate profitability observed since the financial crisis are the key drivers behind currently high equity valuations. At the same time, the labour share of GDP has been declining as wage growth remains muted. In part, this profitability phenomenon is structural, due to factors such as globalisation and declining union power. Shorter-term cyclical factors such as high developed-market unemployment levels are also important. The benefits from structural factors are now largely in the rear-view mirror and furthermore US cyclical wage pressure appears to be on the increase. He therefore believes profit forecasts are unlikely to surprise to the upside and remains cautious on developed market equities.
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Equity strategy and market outlook - July 2017
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In this month’s strategy piece, Alastair George believes that good times to invest are when there are a multitude of ways to win and limited downside. At present, however, the bull case for equities seems to be increasingly based on a single ‘Goldilocks’ scenario contingent on the persistence of high equity valuations, easy monetary policy and low volatility. The path for even adequate returns on equities therefore seems rather narrow at present. This absence of upside, rather than any specific downside trigger is, in his view, sufficient reason to run portfolios at below benchmark risk levels.
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Equity strategy and market outlook June 2017
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In this month’s strategy piece, Alastair George believes that, judging by the market reaction to ECB President Draghi’s most recent comments, a tipping point may have been reached. Peak monetary accommodation is now in the rear-view mirror and investors are becoming increasingly worried about tightening policy. We believe this adds weight to our cautious view on global equities but investors should also consider that overly pessimistic forecasts for an aggressive quantitative tightening could ultimately prove wide of the mark. There is a distinction between headwinds and hurricanes and we do not believe policy error should be the base case at this stage.
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Equity strategy and market outlook May 2017
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In this month’s strategy piece, Alastair George believes that global equity markets are being supported by declining inflation expectations pushing bond yields lower and consensus forecast for profits growth of 10%, which have remained intact throughout this year. While this Goldilocks period for equities may continue, there is a mutual inconsistency in expecting both robust profits growth and ultra-low bond yields to persist in the medium term. Therefore, even if our base case is for markets to gradually drift higher in the short term, we continue to believe equity risk should be selective, focusing on specific catalysts or event-driven situations as the current low-volatility environment is likely to incentivise further M&A activity.