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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


Strategic Insight blogMore

Earnings revisions: No sign of a trade war (yet)

In our view developed market equities remain in a benign de-rating phase, moving only sideways as profits rise and unconventional monetary policy is withdrawn. Critical to this view is a robust set of profits growth figures for 2018. Despite a significant slowing of economic momentum in the UK and Europe, consensus forecasts there still call for 8-9% 2018 earnings growth on a median basis. In the US, profits forecasts have seen another leg higher in recent months. The median US company is now expected to deliver close to 20% earnings growth in 2018. While there remain legitimate concerns and “headline risk” in respect of US trade policy, in our view and for the near-term, investors seem unlikely to dash for the exits with profits growth this strong.

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*Multiple Sectors

31/05/2018
Equity strategy and market outlook - May 2018
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In this month’s strategy piece, Alastair George observes underperforming emerging markets, a strong dollar, rising volatility and a repricing of fundamental credit risk in Italian bond markets. He views these not as disparate narratives but suggestive that global risk premia are rising as US monetary policy is tightened. Political developments in Italy have reignited concerns over the sustainability of the euro project as the long march of populism in Italy has finally knocked on the door of government, only to be turned away. Italian political risk is likely to remain elevated for some months. Although there has been a notable weakening of economic momentum in Europe, consensus profits growth estimates remain stable. He believes that provided this remains the case, there is still the prospect of a benign de-rating of currently expensive equity markets as profits grow, with markets moving sideways in a volatile trading range. US foreign policy is inconsistent and remains a wildcard and the uncertainty remains at risk of affecting global business confidence. There is no change to his cautious outlook for equities.
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*Multiple Sectors

26/04/2018
Equity strategy and market outlook - April 2018
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In this month’s strategy piece, Alastair George believes that with output gaps closed future monetary and wage growth developments offer only headwinds, both for markets and levels of corporate profitability over coming quarters. Uncertainty in respect of US trade policy risks a chilling of corporate optimism, leading to a shortfall in business investment and short-term economic momentum even if the probability of an all-out trade war remains remote. After the modest falls from the market highs recorded in January, global equities remain expensive compared to historical valuation levels, according to our estimates. Record profit margins also face risks from developments in trade policy and tightening labour markets. With Fed policy clearly remaining on a tightening track, we stick with our cautious view on global equity markets.
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*Multiple Sectors

29/03/2018
Equity strategy and market outlook
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In this month’s strategy piece, Alastair George believes that it is very easy to point the finger at US trade sanctions against China as a reason for the recent declines in equity markets. The prospect of a confrontation in the near term, in respect of access to markets and IP protection, is clearly unhelpful for global equity sentiment. However, the second dynamic at work during Q118 is a rapid rise in US LIBOR. At the same time, the US technology sector has suffered as the furore over the political use of personal data collected via social media risks fines, regulations and a change in consumer preferences, even if the crisis need not be existential for the industry if skilfully handled. We are now seeing a trend of weaker economic data in Europe and unweighted 2018 earnings estimates have continued to fall during Q1, if modestly. The benefits of US tax reform and the tailwind of economic momentum of 2017 are now in the rear view mirror. US and European equity investors will have to contend with a slowing of economic momentum in Europe, high valuations and tightening US monetary policy, in addition to significant headline risk in respect of a “trade war” over the next quarter.
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*Multiple Sectors

22/02/2018
Equity strategy and market outlook
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In this month’s strategy piece, Alastair George highlights that the standout market event during February was the discontinuity in equity market volatility. In his view, renormalisation of monetary policy will over time have a much broader impact on asset prices. In particular, this volatility episode adds to the weight of evidence that market risk premia will also revert back to more normal levels as interest rates rise. There has, however, been no evidence in recent weeks that economic fundamentals are weakening. While recognising the growth dynamic is strong for the moment, he continues to believe equity portfolios should now be tilted towards sectors that have offered a degree of resilience. Bond yields may have risen substantially since he highlighted anomalously low yields in December, but on balance the risks still appear to the upside.
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25/01/2018
Equity strategy and market outlook
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In this month’s strategy piece, Alastair George believes that the first few weeks of trading in January have highlighted the themes for the remainder of 2018. Strong economic sentiment and earnings upgrades resulting from US tax reform initially pushed equity markets higher. However, the same factors are now pushing the entire yield curve upwards, creating competing demands for investors’ capital. We continue to believe that in the short term, the still-strong growth dynamic will have the upper hand and risk assets will continue to perform. Over the longer term, however, the re-normalisation of monetary policy may bring stretched equity valuations into sharper relief. For government bonds, yields still seem to be too low given current growth prospects, despite the recent increases, and we remain underweight.