瑞信-全球-投资策略-全球股票策略：还有上升空间但要在反弹中出售-2019.1.17-55页.pdf

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.17 January 2019 Global Equity Research Investment Strategy Global Equity Strategy Research Analysts Andrew Garthwaite 44 20 7883 6477 andrew.garthwaitecredit- Robert Griffiths 44 20 7883 8885 robert.griffithscredit- Nicolas Wylenzek 44 20 7883 6480 nicolas.wylenzekcredit- Mengyuan Yuan 44 20 7888 0368 mengyuan.yuancredit- Kartikeya Upadhyay 44 20 7888 2339 kartikeya.upadhyaycredit- Asim Ali 44 20 7883 2480 asim.alicredit- STRATEGY Some upside to go,but sell into the rally We stick to the year-end targets published in our 2019 Outlook in November,which currently point to around 5%upside for the key global markets,but advise selling developed markets into the rally rather than continuing to build positions.Why do we still see near-term upside potential?Tactical indicators:On December 24th,our composite indicator became the most depressed since 2005.Historically,tactical indicators have rallied by 1.2 s.d.over the next three months from such levels.Value:The US ERP is now 5.9%,while the warranted ERP is 5.2%.Stress-testing our earnings and ERP model implies markets are discounting 1%US GDP growth.The global(ex US)P/E and Shiller PE are 22%and 27%below their averages,respectively.No recession yet:If history is a guide,then to get a fall of more than 20%in US equities,a recession is needed in the second half of this year;this seems too pessimistic.The yield curve now implies a 23%chance of a recession in 12 months time.Admittedly,a lower probability held ahead of 3 out of the last 7 recessions,but each of these were catalysed by idiosyncratic factors.The Fed has turned off the autopilot:We think the Fed remains highly data-dependent,limiting the risks of a hard landing.Historically,a Fed tightening pause has seen equities rise by 13%over the subsequent 6 months(though admittedly prior pauses in tightening have come earlier in the cycle).Real yields at realistic levels:The TIPS yield is now close to r*which we would view as being realistic,and the Fed reduced its median r*forecast to 75bps on December 19th.Free cash flow generation:US FCF is still just in excess of dividends and buybacks,and buybacks as a style are flat-lining against the market.Why still sell into the rally?1)Excess liquidity is consistent with a de-rating(of c15%);2)Earnings revisions are consistent with falling equities and normally take another 7 months to improve.They have been very closely correlated to global PMIs.We see European PMIs recovering post Q1(but a de-stock is required),but have yet to see meaningful policy steps to support Chinese demand;3)US wage growth has now risen to a level implying a small margin squeeze.c4.5%unemployment is required to alleviate this(and that would require GDP growth to slow to 1-1.5%);4)US cyclicals do not yet look cheap(unlike in Europe);5)When investment-grade spreads are above 150bps,the S&P typically falls Y/Y and IG spreads are not at attractive levels.The biggest swing factors from here:China(where demand is likely to slow further,more policy response is needed and the pain threshold for that response is higher than normal;that said,there is policy flexibility and the preconditions for a hard landing are not in place),European PMIs,a more dovish Fed and US wage growth(which is rising only moderately,but we think it will stay below the danger level of 3.5-3.75%until Q4).We argue against selling China plays at this point.17 January 2019 Global Equity Strategy 2 Table of contents Some upside to go,but sell into the rally 3 Why another 5%rally looks likely.4 What are the long-standing bearish factors?.23 What are new problems which emerged in Q4 18?.24 Key issues.35 Europe.37 China.40 Appendix 52 Index targets.52 S&P performance before and after curve inversion.52 17 January 2019 Global Equity Strategy 3 Some upside to go,but sell into the rally We discussed the outlook for equities overall in our outlook nearly two months ago(see 2019 Research Outlook:Equities,Regions and Macro,26 November).In this note,we review our thoughts again given the latest market developments and recent volatility.In sum,we continue to see some further upside to markets,but would recommend selling into this rally rather than continuing to build positions.To quote Benjamin Graham,“In the short term the market is a voting machine and in the long term a weighing machine.Figure 1:Preconditions of bear market versus bull market are now evenly matched Source:Refinitiv,Credit Suisse research We opt to keep our year-end target for the Euro Stoxx 50 unchanged at 3,200,FTSE 100 at 7,300,and Nikkei 225 at 22,300(see the Appendix).We have around 5%upside for MSCI AC World.In this piece we discuss the following:1)What stops us going underweight equities and why the current rally can continue by another c5%or so;2)What are the bearish factors that mean we recommend selling into rallies;3)What the key swing factors are:China and Europe with China being the most important.We think a lot of China pessimism is in the price(and hence we are benchmark mining and luxury).Preconditions for a bear marketInvestment grade spreads widening for more than 7 monthsUS Shiller P/E elevatedUS corporate leverage at all-time highs(on some measures)Higher volatilityBond/equity correlation breaking downEarnings revisions turning negativeExcess liquidity slowingLabour getting pricing power,implying margins peakReasons why the bull market can continueEquity Risk Premium too highOutside the US,both P/E and Shiller P/E are c25%below their normUS bear markets precede a recession by approximately a yearUS RoE more sustainable-EPS can stay above trendFree cash flow above dividends and buybacksTactical indicators highly depressedHighly data-dependant and increasingly dovish Fed 17 January 2019 Global Equity Strategy 4 Why another 5%rally looks likely 1.Tactical indicators Our aggregate tactical indicator hit the most depressed levels for 13 years in late December.We find that when tactical indicators move up from such depressed levels they have nearly always moved up to higher levels than those of today.Figure 2:Aggregate tactical indicators had hit their lowest level since 2005 and they ordinarily rise by another 1std Figure 3:and when they hit the lowest level,they tend to move up to a much higher level Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research We note that a“buy-the-dip”strategy(buying on the fourth day when the prior three-day returns have been negative)worked poorly in 2018(even compared to 2008),but our aggregate tactical indicator has fallen to an extreme.Figure 4:A buy-the-dip strategy worked poorly in 2018 over the very short term Figure 5:Only speculative net longs and bull-bear ratios remain positive Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research -2.0-1.5-1.0-0.50.00.51.01.52005200720092012201420162019Indicates sentiment more extendedAggregate tactical indicator,5-yr z-scoreGreen(solid)circles indicate successful signals;red(dotted)circles unsuccessful signals1 months2 months3 months4 months13-Jun-06+0.8-0.2+1.5+1.008-Jan-08+0.2-0.0+0.9+1.201-Jul-08+0.7+1.3+1.0+0.401-Sep-15-0.3+0.7+0.9+0.912-Jan-16-0.1+0.7+1.6+1.525-Dec-18Average+0.2+0.5+1.2+1.0Minimum-0.3-0.2+0.9+0.4Change in tactical indicators(#of std deviations)afterTrigger dates-0.25-0.2-0.15-0.1-0.0500.050.10.150.20.250.31980198419881992199620002004200820122016Average annual 1d%return if rolling 3 dayreturns are negative S&P 500-9.1-8.1-7.1-6.1-5.1-4.1-3.1-2.1-1.1-0.10.9S&P 500 net spec longsII bull/bearCorporate net buyingGlobal risk appetitePut/CallGlobal Equity risk appetiteAAII bull/bear%stocks above 200d MASkew:Long runSkew:Short runSentiment more extendedTactical indicators,standardised 17 January 2019 Global Equity Strategy 5 2.Fed turning more dovish Fed Chairman Jerome Powells comment on Oct 3rd(“were a long way from neutral”on interest rates)was an important contributing factor to the equity market sell-off.Then at the press conference accompanying the FOMC meeting on December 19th,he indicated that the process of balance sheet contraction was on autopilot with policy no longer needing to be accommodative,and that financial conditions have tightened only a little bit despite the fact that high yield corporate bond issuance completely stopped in December for the first time since November 2008.These remarks were problematic because they implied the Fed believed the economy was overheating(i.e.growth had to be brought back to trend of just 1.8%GDP)but also seemed to greatly increase the risk of a policy mistake(and thus a hard landing).We would stress that all of the comments above were made off-the-cuff in Q&A,and thus it was notable that in prepared remarks on Friday 4th January,Powell commented that If we came to the view that the balance sheet normalization plan or any other aspect of normalization was part of the problem,we wouldnt hesitate to make a change.In other words,he appeared to turn off the autopilot.He further added the Fed are listening sensitively to the message that markets are sending.The FOMC minutes of December 19th seemed to reinforce this,stressing that the Fed could afford to be patient,and remain highly data-dependent.We note that the Fed has reduced the median neutral rate to 2.75%from 3%.Our judgement would be that this more dovish message can sustain for the following reasons:Financial conditions have tightened to be consistent with only 1.5%GDP growth.While a lot of the weakness in the data has related to the soft,or survey-based,data,this should still give the Fed cause for concern.Among the notable releases,a Duke University survey suggested 82%of CEOs believe there will be a recession by the end of 2020;we have seen the largest three-month fall in the NAHB index for 12 years;and the 4th sharpest one-month fall in ISM new orders,while the declining stock market itself brings with it a negative wealth effect.Figure 6:The tightening of financial conditions suggest growth slows towards trend Figure 7:St Louis Fed financial conditions are still a little loose though have tightened substantially Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research -4-3-2-1012345-6-4-2024199720012005200920132018US financial conditions indicatorUS GDP growth,%chg,rhs-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2-0.10.00.1-1.6-1.4-1.2-1-0.8-0.6-0.4-0.2201220132014201620172018Financial conditions indicesSt Louis FedChicago Fed,rhs 17 January 2019 Global Equity Strategy 6 We see no inflation issue,with core CPI having peaked at 2.2%and with the core PCE deflator down to 1.8%from 2%.Moreover,the Fed still sees no real threat of a disruptive asset bubble.At the September FOMC meeting,Powell highlighted that financial vulnerabilities appear moderate,and on November 28th,he said that equity market prices are broadly consistent with historical benchmarks.Figure 8:Inflation expectations have fallen to 1.8%,and three-month annualised core CPI is now falling Source:Refinitiv,Credit Suisse research We would also highlight that the long term median neutral rate was revised down to 2.75%from 3%at the December 19th FOMC meeting.This is particularly important as previously we had been concerned that the neutral rate would continue to be revised up.President Trump was reported to be considering firing Chairman Powell(Bloomberg,22 Dec).Such a move would likely be very counterproductive as it would hit the inflation credentials of the Fed at a time when there is some$1.2trn of net bond issuance in 2019.We would take Treasury Secretary Mnuchins subsequent comments as an important offset(that removing Powell would be the wrong thing to do,CNBC,22 Dec).We also think that there is very little risk of the Fed raising rates further than it would have done ordinarily in order to show it is being independent.If we look at the previous occasions when the Fed has pressed pause on a tightening cycle at a mid or late cycle phase,equities have tended to go one to register strong performance.Looking at the policy pauses of 1995,1997,2006 and 2015,equities rose by 13%over the subsequent six months and 25%over the subsequent year.We admit that such pauses were,with the exception of 2006,at a different stage of the cycle to that we are on now.-0.5%0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%2003200420052006200720082009201020112012201320142015201620172018Inflation expectations(US 10 year yield minus TIPS yield)3m core CPI annualised 17 January 2019 Global Equity Strategy 7 Figure 9:Mid to late cycle policy pauses by the Fed Figure 10:Such pauses have tended to see positive returns over the next 12 months Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research 3.Valuations are still reasonable,though the warranted ERP has now risen to 5.2%The US market has de-rated from a median P/E of 17.4x to a low of 15.0 x(a 14%fall)from September to December 2018.Since then,the market has re-rated to 15.8x.Historically,de-ratings of this magnitude have been followed by strong subsequent performance.On every occasion in the past 20 years,the market has rallied over the next three months(on average by 12%,of which we have already had 10%).Figure 11:From peak to trough the de-rating was 14%.Figure 12:and previous de-ratings of 14%have seen positive returns 100%of the time on a three-month view with an average gain of 12%(versus 10%so far)Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research 01234567891019891992199419972000200320062009201220152018US Federal Funds Rate,with pauses highlightedFed pauses3m Return6m Return1y Return 16/12/2015-2.8%0.3%9.1%29/06/20065.0%11.3%18.1%25/03/199711.3%20.5%39.6%01/02/19959.5%19.5%35.7%Average5.8%12.9%25.6%91113151719211994199619982000200220042006200820102012201420162018S&P500 median P/EAveragePeakTroughCurrent1 months later3 months later6 months later12 months laterMar-98Aug-98-23%3%23%28%38%Apr-99Feb-00-30%10%1%10%-9%May-01Sep-01-18%6%12%10%-21%Jan-02Feb-03-32%3%13%19%36%May-07Feb-08-21%-1%5%-4%-45%May-08Feb-09-31%11%21%40%50%Apr-10Jun-10-17%7%11%22%28%Apr-11Sep-11-24%14%11%24%27%Sep-18Dec-18-14%7%12%19%13%88%100%88%63%of times positiveAveragePeakTroughDe-ratingS&P absolute performance 17 January 2019 Global Equity Strategy 8 In the US,the equity risk premium(ERP)based on consensus numbers is 6.9%(and 5.9%on our numbers).The warranted(or required)ERP is driven by lead indicators and credit spreads,and the recent sharp deterioration in both has resulted in the warranted ERP rising to 5.2%.This is