japanja
Olympic Games: on! Central banks: on! Equity party: on!

Olympic Games: on! Central banks: on! Equity party: on!

14-07-2021 | Column
As we enter the second half of 2021, all the ingredients that have been fueling the global stock market rebound since March 2020 remain in place. And we believe the equity party that investors have been enjoying will continue this summer.
  • Arnout  van Rijn
    Arnout
    van Rijn
    CIO Asia Pacific

Speed read

  • Economic recovery remains on track, corporate earnings prospects are promising 
  • Fiscal and monetary support likely to remain ample for the time being
  • We stay bullish, but are aware this view relies on central bank cooperation

New confirmed cases of Covid-19 have come down significantly from the peaks registered in April and vaccination campaigns have been progressing at an accelerated pace – in developed markets as well as the major emerging markets.

With economies in gradual reopening mode, macroeconomic indicators have become less buoyant, but they remain clearly positive, and corporate earnings prospects are promising. So far this year, earnings reports have been good across the board. According to consensus estimates, the world is looking to achieve a staggering 39% earnings per share growth in 2021. This would come after a rather limited 11% decline of global earnings in 2020, mainly caused by weak European bank earnings. New highs in profits, new highs in markets. Simple.

Although global equities may seem expensive from a multiples perspective (20 times expected earnings, 3 times book value), they look very attractive when compared to bond market valuations. Current price levels still reflect an average earnings yield of close to 5% for the MSCI World Index. Something bondholders can only dream of these days. Meanwhile, emerging markets look even more attractively valued, although this is partly justified by the difficulties some of them are experiencing in recovering from the Covid-19 shock.

What’s more, fiscal and monetary support is likely to remain ample for the time being. While global money supply growth has been slowing, it is still abundant and central banks have done their best to convince investors they will not take the proverbial ‘punch bowl’ away from the current easy money party anytime soon. The Fed’s recent grueling backtracking on a potential hawkish turn, after the market jitters seen in June, is a good illustration.

We simply have to stay bullish, even though we’re well aware that this view relies on central bank cooperation

As dangerous as these very loose monetary policies may seem, from a longer-term perspective, they make it next to impossible to recommend that clients reduce risk at this point. With so much money floating around, any market correction will most likely be met with quick buying. We simply have to stay bullish, even though we’re well aware that this view relies on central bank cooperation. 

最新の「インサイト」を読む
最新の「インサイト」を読む
配信登録

Positive stances for developed and emerging markets

In fact, both our developed and emerging markets equites teams have kept a positive stance on their respective stock markets for this quarter and have not made any changes to the five underlying factors of our analysis framework. For now, we believe that the current ‘Goldilocks’ environment – with inflation and economic growth neither too high nor too low – will continue for some time.

In the US, government and central bank have successfully pulled out all the stops: another extension of quantitative easing, explosive money growth, massive payroll support and even heftier infrastructure spending. As a result, the economy is back on track, jobs are returning, and consumers’ savings will now be spent in the service economy: masks are off!

In Europe, recent economic news has also been encouraging. Governments seem to focus less on daily new Covid-19 cases, and more on reviving economies and people’s spirits alike, after a rather depressing spring.

In Japan, domestic demand remains lackluster, but the economy is supported by its strong export position in a recovering world. In this context, it is remarkable to see the yen lose ground against a rather weak dollar, and we believe there is upside for this risk-off currency. Unfortunately, we can't use our cheap yen to travel to Japan this summer and watch the Olympics. The Games are on, but spectators will be watching it on a TV-screen.

We also remain upbeat regarding emerging markets, despite their recent lagging performance, as we believe this is partially due to initially slower vaccination rollouts, and because Chinese markets are no longer contributing after a stellar 2020. Now that the Chinese economy has fully recovered and is back to more sustainable growth rates, its equity markets feature a relatively weak earnings outlook for 2021.

That said, the historically high valuation gap – of about 30% – between emerging and developed markets clearly points towards a catchup. Admittedly, valuation multiples typically are lower in emerging markets than in developed ones, but we believe the gap should narrow over time, especially now that increasingly large swathes of the emerging market universe are technology oriented.

So, under these circumstances, what could possibly spoil the equity party this summer? While they may not be our base case, we are forced to consider alternative, less festive scenarios.

Besides a resurgence of the Covid-19 pandemic, one threat for markets may come from the global agreement on the 15% minimum corporate tax rate. Higher taxes are the inevitable flipside of the government largesse we have seen in the Western world. Taxpayers and those that were on the receiving end last year will eventually be asked to foot the bill. And large corporates certainly have been on the receiving end with record-high profitability. So, higher taxation should eventually lead to lower (after-tax) profitability.

Inflation, inflation, inflation

Inflationary pressure represents the other elephant in the room. Warning signs have proliferated in recent months, with shortages in several critical areas, such as semiconductors, shipping containers and even in crude oil. Quite a few of the companies we hold in our portfolios have responded by raising prices. Any new evidence on the direction taken by inflation this quarter will be scrutinized in light of what it may mean for monetary policy. 

From that perspective, the Fed’s annual ‘central banking party’ in Jackson Hole, towards the end of August, will be of particular interest. Ever since the financial crisis of 2007-2009, markets have become obsessed with every word central bankers utter. So far, major central banks have taken the view that inflation will be transitory and unlikely to cause them to alter their course of action. Indeed, although house prices are still on a tear in many regions, commodity prices seemed to have rolled over already.

For all the recent talk about inflation, we must admit that fast-rising consumer prices have essentially remained a US phenomenon

Also, for all the recent talk about inflation, we must admit that fast-rising consumer prices have essentially remained a US phenomenon. US consumer prices rose 5% year-on-year in May, the fastest pace in nearly 13 years. Elsewhere, however, inflation remains much more subdued. In China and the Eurozone, for instance, consumer prices are rising at around 1% and 2%, respectively. In Japan they remain broadly flat; no inflation here yet.

Finally, one more reason for central banks to hold their horses and not rush to tighten their monetary stances is that accommodative financial conditions will be instrumental in funding the transition towards a low-carbon economy. In times of climate emergency, with colossal investments needed from both the public and private sector in the coming years, this may prove to be the ultimate argument for central bankers to keep money flowing at the expense of temporarily higher inflation.

重要事項

当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。

ご契約に際しては、必要に応じ専門家にご相談の上、最終的なご判断はお客様ご自身でなさるようお願い致します。

運用を行う資産の評価額は、組入有価証券等の価格、金融市場の相場や金利等の変動、及び組入有価証券の発行体の財務状況による信用力等の影響を受けて変動します。また、外貨建資産に投資する場合は為替変動の影響も受けます。運用によって生じた損益は、全て投資家の皆様に帰属します。したがって投資元本や一定の運用成果が保証されているものではなく、投資元本を上回る損失を被ることがあります。弊社が行う金融商品取引業に係る手数料または報酬は、締結される契約の種類や契約資産額により異なるため、当資料において記載せず別途ご提示させて頂く場合があります。具体的な手数料または報酬の金額・計算方法につきましては弊社担当者へお問合せください。

当資料及び記載されている情報、商品に関する権利は弊社に帰属します。したがって、弊社の書面による同意なくしてその全部もしくは一部を複製またはその他の方法で配布することはご遠慮ください。

商号等: ロベコ・ジャパン株式会社  金融商品取引業者 関東財務局長(金商)第2780号

加入協会: 一般社団法人 日本投資顧問業協会

本記事に関連するテーマ: