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.

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Alastair George

Alastair George
Strategist


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Earnings Revisions: Waiting for upgrades?

Though global equities continue to benefit from significantly increased investor optimism, US and continental European earnings forecasts for 2017 have remained stubbornly static over the last 3 months. However, in the UK 2017 earnings estimates continue to move higher, tracking the decline in sterling and providing a degree of fundamental support for the FTSE100. For US and continental European equity markets, the increasing divergence between 2017 profits forecasts and their respective price performance, when added to the lack of valuation support, puts a question mark over how much further the rally can run.

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15/12/2016
Equity strategy and market outlook - December 2016
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In this month’s strategy piece, Alastair George writes that as there have been few changes in the investment outlook since our last update in this final note for 2016 he has reviewed our calls for the year. This is an important exercise for discovering any potential bias in our strategy forecasts. We are pleased to discover that the hits clearly outnumber the misses although the timing of our ‘buy’ ideas were much better than our ‘sells’ and the bias towards caution was unhelpful this year. For 2017, Alastair continues to believe US government bond yields are on a rising trajectory and maintains a cautious view on global equities, primarily on valuation concerns. Furthermore, a rising US dollar is likely to be negative for emerging markets and corporate profits forecasts globally. A period of underperformance for global equities cannot be ruled out for Q117, or at least until the uncertainty in respect of the interaction between US monetary and fiscal policy has been resolved.
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24/11/2016
Equity strategy and market outlook - November 2016
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In this month’s strategy piece, Alastair George believes that Trump has surprised markets twice over, first with a Presidential victory and second a rally in risk assets. Alastair views this rally as largely due to investor positioning as nothing new has emerged from the Trump camp since the election. Investors should however continue to focus on valuations and the direction of monetary policy, even as he asks the question whether “Make America Great Again” could be compared to Draghi’s “whatever it takes” OMT announcement. A key difference is that in 2012 many asset markets in Europe were trading at distressed levels and this is not the case in the US in 2016. Therefore, while in some regards there may be a parallel, he does not change his cautious positioning on equities.
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27/10/2016
Equity strategy and market outlook - October 2016
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In this month’s strategy piece, Alastair George believes that in an environment of increasing political turbulence, markets have sought comfort in relatively stable earnings estimates. He believes longer-term investors should consider trading earnings revisions to their advantage and overweight exposures to commodities, commodity equities and energy are no longer contrarian and should be reduced. In currency markets, the decline in sterling is much less surprising in the context of its significant prior overvaluation; Brexit has merely acted as a catalyst. Sterling is likely to remain volatile and relatively weak for some time, but current levels now reflect the known Brexit risks. He also believes investors should be screening for UK companies which are likely to benefit from weaker sterling with share prices that have underperformed international peers.
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30/09/2016
Equity strategy and market outlook - September 2016
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In this month’s strategy piece, Alastair George believes central bank influence may have reached its high watermark and the tide is now turning towards fiscal policy. While supportive of GDP growth, investors who have become conditioned to riding the waves of monetary stimulus in recent years should not necessarily assume such a switch in policy focus will be positive for asset prices. With bond yields at record lows and equity valuations near the top of historical ranges following the strong rally in 2016 to date, he believes investors should now be looking to lower exposure to both asset classes and increase allocations to lower risk investments and cash.
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25/08/2016
Equity strategy and market outlook - August 2016
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In this month’s piece, Alastair George believes that over the last six months, markets have been driven higher by easier than expected monetary policy in the US and UK. In the UK at least the anticipated economic slowdown has so far failed to materialise, leading to a short-term win-win for equity investors. Therefore, despite very high valuations, with global earnings estimates being revised upwards equity markets are likely to remain buoyant. However, looking towards 2017 and as central banks question the benefits of negative interest rates and the focus turns to fiscal policy, Alastair believes investors may wish to start taking take profits in government bonds. Having enjoyed the relief rally, he also believes equity investors should maintain discipline and look to take profits on positions in overvalued sectors which may represent bond proxies.