Swiss banking giant UBS says investors should increase their weight in global stocks, believing that the recent withdrawal has left the shares at the most attractive ratings at a time when overall earnings growth.
The MSCI All Country World index is still around 6 percent below its peak, "creating an opportunity for investors," UBS said in a research note. It is increasing its recommendation for overweight in global actions versus US government bonds.
"We believe that the sharp market decline in October represented a correction in the context of a running bull market, rather than the beginning of a bass market," UBS analysts led by Mark Haefele said in the note.
UBS cites several key risks for global actions at this time, including a deterioration in technicians, so the market momentum is weak, a steady increase in real US interest rates, and few indications that the US trade dispute China will finish soon.
"Even though we take into account the potential risks of adding to stocks against that background, we believe that the scale of dismissal was disproportionate. Even if we use our own relatively cautious estimates of earnings for 2019, which include the expected impact of US tariffs And Asia and a modest slowdown in the economic growth of the title, the ratings continue to be favorable. Emerging market shares are discounted at an average of 30 years of 13x early revenues, at around 11x today.
"Early OP / E shares of the eurozone, at approximately 12x, are also below the average of 14x in the long run. And although the absolute ratings in the US are not so cheap, in just over 16x. 12 months ago, compared to a 15.6x long-term average, they remain attractive in relation to the securities: the 4.6% United States equity risk premium is above its long-term average of 3.2% .
"And, of course, current economic and profit data are still compatible. With three-quarters of the S & P 500 companies reporting revenue from the third quarter, earnings per share are under way to rise by 27% y / y Almost 80% of companies have surpassed analysts' estimates, compared to a long-term average of only 64%. Although the companies in the euro zone reported less impressive results, with about 7% growth per share so far , there is encouraging evidence that the euro zone economy is beginning to recover from a soft patch German industrial production picked up in September, with a production that rose 0.8% from the previous year. And in China, recent PMIs reached slightly ahead of expectations and the growth of fixed investments showed signs of stabilization.
"The market may also be underestimating the potential of positive surprises. Expectations that go to the G20 meeting in late November for a trade agreement between the U.S. and China are fairly low. But a positive surprise is not impossible. and Donald Trump were more conciliatory and there were precedents for the initially tough rhetoric of the Trump administration that was tempered over time, especially in North Korea, NAFTA and EU vehicle trade. On the other hand, China still has the The flexibility to increase its activity. Economic stimulus and, if the volatility continues or the data deteriorates, the Fed could point to more flexibility at its pace of paths than what is currently waiting for the market.
"The upward market is clearly becoming more mature and this stage of the cycle is usually associated with greater volatility and a more modest reach to obtain more benefits. But we believe that the value offered by global actions justifies tolerating the potential of greater volatility and we expect That markets remain more along our six-month tactical investment horizon. The presence of our counter-cyclical position, overweight in ten-year Treasury bonds, would also help stabilize our portfolios based on the likely volatility. "