"The United Kingdom will experience slower economic activity until the outcome of Brexit talks becomes clearer."
UK – increasingly cautious. With its large share of internationally-exposed and resource-oriented companies, the UK market is highly sensitive to sterling weakness and commodity price rises. As a result, earnings growth has improved these last few quarters.
However, we now expect these support factors to fade and analysts have indeed started to slash their earnings forecasts. Moreover, the United Kingdom will experience slower economic activity until the outcome of Brexit talks becomes clearer. We have therefore decided to turn even more cautious on the UK market.
Switzerland – stay neutral. The Swiss market has a bias towards defensive sectors such as Healthcare and Consumer Staples, making it less sensitive than others to the pick-up in global trade. Also valuations remain high.
Selectivity is key in emerging markets
"The support of last year’s surge in commodity prices will start to fade, penalising markets highly exposed to Energy and Materials"
Emerging equities – prefer commodity importers. Like the eurozone and Japan, emerging markets should benefit from the upswing in global trade and improved economic growth. Corporate profits have recovered and margins are expanding while valuations are attractive, especially compared to developed markets.
Risks of protectionist measures seem to have receded in the US and rate hikes will remain gradual. However, we expect slower Chinese growth in H2 as the impact of last year’s stimulus vanishes. As a result, we still advise selectivity with a preference for markets undertaking structural reforms (e.g. India) or corporate governance reforms (e.g. South Korea) and those geared to the upswing in the technological cycle, especially South Korea and Taiwan.
Furthermore, the positive impact of last year’s surge in commodity prices for resource producers will start to fade, penalising markets highly exposed to Energy and Materials – mainly commodity exporters such as Brazil and Russia.
Sources: SG Private Banking, Datastream. 30/06/2017. EPS = earnings-per-share. Past performance should not be seen as an indication of future performance. Investments may be subject to market fluctuations, and the price and value of investments and the income derived from them can go down as well as up. Your capital may be at risk and you may not get back the amount you invest.