The Invesco Equity Strategy Playbook - It’s Too Late to Get Bearish (Q3 Update)
Acquiring and analyzing financial and economic data to develop a view on global equity markets can be a time-consuming and expensive endeavor that requires a specific, technical skill set. The Equity Strategy Playbook seeks to solve these issues by gathering, analyzing, and presenting the drivers of equity performance in emerging markets, China, Japan, Europe, and the United States in a visual and digestible format.
Where Are Equity Opportunities Located Today?
After tumbling well into correction territory late last year, global equities (as measured by the MSCI All Country World Index) have rebounded sharply in 2019.
While emerging markets (EM) have experienced a tepid six months owing to intensifying trade wars, our positive outlook should resume thanks to the US and Chinese authorities’ efforts to ease financial conditions. Despite recent underperformance, our EM equity thesis of attractive valuations plus strong economic growth hasn’t changed, and we still see opportunities for long-term investors.
In Japan and Europe, equity valuations were attractive, monetary policy was accommodative, and share prices were relatively oversold. However, we believe those markets face headwinds in the form of fiscal drag, sluggish economic growth, and negative currency trends.
US stocks (as measured by the S&P 500) have outperformed global equities (as measured by the MSCI All Country World Index) since the beginning of 2008, a prolonged period of outperformance that we expect to continue thanks to an aging—not ending—business cycle, and an economy that continues to grow at a solid pace.
How Is the Playbook Designed?
In our view, a balanced approach to formulating a successful equity strategy requires a careful and thorough assessment of an array of factors, presented below. The views presented in the Playbook follow a systematic framework that incorporates each of these important factors in a consistent manner.
Figure 1: A Consistent, Systematic Method
For Illustrative Purposes Only
We apply this framework to key global equity markets, offering insights that investors can leverage as they build and maintain an equity portfolio. Today, for example, our technical analysis underscores what may be a significant turnaround in emerging market stocks, which experienced heavy selling pressure relative to developed markets – a positive indicator from a contrarian perspective. Over the past 30 years, rebounds from oversold conditions have been followed by multi-year periods of EM outperformance. We believe this could be another one of those episodes.
Figure 2: A Generational Buying Opportunity for EM Stocks?
Emerging Market Equities Relative to Developed Market Equities Since 1988
Sources: Bloomberg L.P., Invesco, 4/30/19. Note: MSCI EM Index price returns in US dollars. An investment cannot be made directly into an index. Past performance does not guarantee future results.
Updated Views Every Six Months
For more details on these and other trends impacting global equity markets, please download the complete Equity Strategy Playbook, and check back for our updated views.
All data from Bloomberg (as of 4/30/2019) unless otherwise noted.
The MSCI Emerging Market Index is designed to measure the equity market performance of the emerging markets.
The MSCI World Index is designed to measure the equity market performance of developed markets and includes the US, Eurozone area, Japan and Canada.
The MSCI All-Country World Index is designed to measure the equity market performance of developed and emerging markets.
The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
The opinions referenced above are those of the author as of June 12, 2019. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.