瑞信-全球-投资策略-全球股票策略：区域展望-2019.6.4-151页 (2).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.4 June 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- Asim Ali 44 20 7883 2480 asim.alicredit- STRATEGY Regional outlook The key drivers of regional performance in our view are:i)the cycle(forming a bottom now,and likely to recover in late Q3);ii)the dollar(we expect downside from here);and iii)the trade war(we assume a negotiated resolution).Combined with our regional scorecards,this points towards maintaining our overweights of emerging markets and Japan.Japan overweight:i)Cheap valuation(35%discount on EV/EBITDA to global markets close to a 10-year low),ii)clear corporate change suggesting the discount should narrow,with buybacks reaching 5%of market cap;iii)the last major region actively engaging in QE(of both equities and bonds).Historically,Japan has been the most sensitive major region to the global cycle.Europe:raise to benchmark:i)We think economic momentum could surprise on the upside,with cyclicals pricing in zero GDP growth;ii)investors have capitulated;iii)earnings revisions are better than those of global equities;iv)we see room for re-leveraging,with buybacks rising;and v)the ERP remains excessive.Why not overweight?i)the sector-adjusted P/E is on only a 6%discount to the US;ii)gross margins(ex tech)are similar to the US at a time when wage growth has been much stronger than expected;and iii)Europe is very underweight tech.We remain overweight Spain and Germany and underweight France and Italy.UK:lower to benchmark:Relative valuations of UK equities are on multi-decade lows and our model shows 12%upside as outflows hit record levels.Nevertheless,we are seeing no positive catalysts:i)Brexit negotiations are only getting harder as the risk of a no-deal Brexit rises;ii)we see a possibility of a Labour government by 2022 and think the partys policy proposals could be negative for equities;and iii)UK growth looks likely to disappoint,but valuation means sterling downside is now limited(c78%of sales are international).US:remain underweight(ex tech):i)The gap between global and US growth is set to close(because of fiscal stances and output gaps),and this hurts relative performance,especially when a number of reliable US lead indicators have been very weak(PMI new orders,CEO business confidence or yield curve);ii)US relative earnings revisions are at a peak(owing to taxes,the dollar and tariffs),and the US has far less scope for buybacks than Europe or Japan(given leverage and FCF is no longer covering dividends or buybacks);iii)the US performs less well when global PMIs turn up;iv)valuations of US cyclicals and US ex tech look relatively demanding.We acknowledge that 62%of the time tech outperforms,the US also outperforms,hence this call is ex tech.Emerging markets:small overweight:We already cut most of our overweight in early February.Currency and equity valuations are becoming extremely cheap again.Emerging markets are discounting a fall in China PMIs,and we believe concerns about trade are now close to their peak.A rate-cutting cycle helps GEM outperform two-thirds of the time.We are overweight China and India.4 June 2019 Global Equity Strategy 2 Table of contents Key charts 3 Regional equity allocation the macro backdrop 4 Japan remain overweight 20 Emerging markets remain overweight 31 Emerging market countries.49 Continental Europe raise to benchmark 76 Why not overweight?.84 Country allocation.93 UK equities downgrade to benchmark 110 Why not take weightings down further?.118 The US remain underweight(ex.tech)124 Appendix 139 4 June 2019 Global Equity Strategy 3 Key charts Figure 1:Global industrial production momentum Figure 2:The impact of the cycle on performance Source:Company data,Credit Suisse estimates Source:Refinitiv,Credit Suisse research Figure 3:The P/B of emerging markets Figure 4:Cumulative equity inflows in Cont.Europe Source:Refinitiv,Credit Suisse research Source:Refinitiv,EPFR,Credit Suisse research Figure 5:US relative performance vs PMI differentials Figure 6:Japanese buybacks picked up Source:Refinitiv,Markit,Credit Suisse research Source:Refinitiv,Credit Suisse research -3%-2%-1%0%1%2%3%4%5%6%201420152016201720182019Industrial production,3m/3m annualized momentumGlobalGlobal x-China-4%-2%0%2%4%6%8%10%12%14%GEMJapanCont.EuropeUSAUKDifference between rel.performance when global PMI is rising vs when it is falling0.40.50.60.70.80.91.01.11.21.3200120042008201120152019MSCI EM P/B rel DMAverage+/-1 Stdev-6,0004,00014,00024,00034,00044,00054,00064,000Dec-14Jul-15Feb-16Sep-16Apr-17Nov-17Jun-18Jan-19Cumulative inflows in Continental European equity funds since December 1st 2014,$mBy USA InvestorsBy Ex USA Investors-11-9-7-5-3-113-7-23813182010201120132014201620172019US equities price rel.12m change,lhsGlobal PMI manu.new orders less US PMI manu.neworders,rhs inv0.0%1.0%2.0%3.0%4.0%5.0%6.0%20052007200920112013201520172019Share buybacks,%of market cap,12 month rolling sum 4 June 2019 Global Equity Strategy 4 Regional equity allocation the macro backdrop There are four main influences on regional equity allocation,in our judgement,and taking a view on each top-down factor will ultimately do much of the work in creating a regional equity allocation:1.The global cycle in a time of tariffs The cycle remains one of the key drivers of regional performance,as evidenced by regional sensitivity to the global cycle and operational leverage(see the figures below).Figure 7:The difference in relative performance when PMI is rising vs when PMI is falling over the past 20 years Figure 8:Beta of EPS to global IP by region Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research We think that we are seeing an extended U-shaped recovery in the global cycle rather than a V-shaped recovery.Our economists highlight that non-China IP is now at a trough but owing to the idiosyncrasies of China data that there will be something of a double-dip in global IP(see Global Cycle Notes:The trade wars trenches,24 May 2019).Global PMI new orders versus inventories are now at levels at which they normally trough,while forecasts for global GDP growth are no longer being revised down.-4%-2%0%2%4%6%8%10%12%14%GEMJapanCont.EuropeUSAUKDifference between rel.performance when global PMI is rising vs when it is falling7.04.73.93.63.53.301234567JapanEmergingmarketsWorldUKUSContinentalEuropeBeta of EPS to Global IP 4 June 2019 Global Equity Strategy 5 Figure 9:Global industrial production momentum with forecast Figure 10:Global PMI new orders less inventories are at levels at which they have tended to trough Source:Credit Suisse US Economics research Source:Refinitiv,Markit,Credit Suisse research Earnings revisions have troughed,and these tend to correlate very closely with the share of manufacturing PMIs in excess of 52,which in turn lead global PMIs.Figure 11:The upturn in the breadth of global macro momentum implies that there is a trough in global PMIs Figure 12:The share of countries with a PMI in excess of 52 tends to lead the actual level of global PMIs Source:Refinitiv,Markit,Credit Suisse research Source:Refinitiv,Markit,Credit Suisse research A number of lead indicators appear to have troughed.This includes the Taiwanese Composite Lead Indicator,which our Asia economists hold up as a particularly important lead indicator given the nature of the Taiwanese economy(with intermediate goods accounting for 70%of exports,and 46%of IP highly discretionary electronics and IT see their piece Taiwan:Canary of the global economy,16 April 2019).-3%-2%-1%0%1%2%3%4%5%6%201420152016201720182019Industrial production,3m/3m annualized momentumGlobalGlobal x-China-10%-5%0%5%10%15%-10-5051015200520072010201320162019Global PMI new orders lessinventoriesGlobal 3m/3m IP momentum,rhsCS projection-80%-60%-40%-20%0%20%40%-20%0%20%40%60%80%100%120%20002002200520082010201320162019%of countries with PMI in excess of 52MSCI AC World 13 week earnings breadth,rhs47484950515253545556578%28%48%68%88%108%2010201320162019%of countries with PMI in excess of 52Global PMI manufacturing new orders,rhs 4 June 2019 Global Equity Strategy 6 Figure 13:Taiwans composite lead indicator has started to pick up Figure 14:and tends to lead global IP by around two quarters Source:Refinitiv,Credit Suisse research Source:Refinitiv,Markit,Credit Suisse research There is good evidence that the relatively weak level of manufacturing activity can rebound up to the more resilient level of activity in services.Globally,on two of the past four occasions when there was a sharp slowdown in manufacturing,we saw manufacturing rebound to the level of services PMIs rather than the other way around.Figure 15:A divergence in manufacturing and service new orders has tended to resolve in favour of the latter Source:Refinitiv,Markit,Credit Suisse research Crucially,the major drags on growth which were particularly apparent in 2018 appear likely to diminish or even reverse.In particular,we would highlight China,the euro area and US productivity growth:-0.6%-0.4%-0.2%0.0%0.2%0.4%0.6%0.8%1.0%1.2%2013201420152016201720182019Taiwanese composite lead indicator,%chg M/M404550556065-30-20-100102030401999200120032005200720092011201320152017Taiwanese composite lead indicator,%chg Y/YGlobal PMI manufacturing new orders,rhs30354045505560651998200120052008201220152019Global PMI new ordersServicesManufacturing 4 June 2019 Global Equity Strategy 7 China As we discuss in the GEM section of this report,some of the recent China data has very clearly disappointed,including NBS employment indicators at 10-year lows,retail sales growth(which slowed to its lowest rate since 2003)and nominal GDP,which slowed to 7.8%in Q1 from 9.8%in 2018.However,we would emphasize that China has stabilized credit growth and eased fiscal policy by nearly 2%of GDP and we believe China has the policy response potential,as highlighted in the China section,given it has a basic balance of payments surplus of over 1%of GDP,a primary budget deficit only 3%above real bond yields and a loan to deposit ratio of c83%.The Markit PMI data was a lot stronger than the recent NBS data,and PMI new orders versus inventories had a less obvious dip down.Figure 16:Chinese credit growth has stabilized Figure 17:though new orders versus inventories(on NBS data)has ticked down Source:Refinitiv,Credit Suisse research Source:Refinitiv,Markit,Credit Suisse research Figure 18:Chinese nominal GDP growth has slowed from 9.8%in 2018 to 7.8%in Q1 19 Source:Refinitiv,Credit Suisse research -15%-10%-5%0%5%10%15%20%25%30%35%Jan-16Jul-16Jan-17Jul-17Jan-18Jul-18Jan-19Bank loan growthOff balance sheet lendingCorporate bond growthTSF growth*%chg Y/Y-20-15-10-50510152025Jan-05Nov-06 Sep-08Jul-10May-12 Mar-14Jan-16Nov-17China manufacturing PMI NBS New orders vs InventoryMarkit New orders vs inventory0510152025301999200120032005200820102012201420162018Nominal GDP growthChina 4 June 2019 Global Equity Strategy 8 Euro area We strongly believe that the euro area,which saw momentum slow sharply in 2018,will not disappoint again(the consensus is that GDP of 1.2%Y/Y in Q1 will modestly weaken,but we suspect that there could be a modest acceleration).German new orders less inventories have stabilized.EU consumer confidence has risen for the first time since June 2018.Figure 19:Euro area consumer confidence rose for the first time since June 2018 and tends to correlate with retail sales Figure 20:German new orders less inventories have troughed Source:Refinitiv,Credit Suisse research Source:Refinitiv,Markit,Credit Suisse research US The rise in US productivity growth is now offsetting the(smaller)rise in US wage growth.This therefore has kept unit labour costs and US core inflation measures under control.The net result of this is that US economic growth is arguably more sustainable:there is less of a margin squeeze threatening profits and in turn GDP,while the weakness of core PCE and ULC have encouraged the Fed to adopt an increasingly dovish stance.Figure 21:US productivity growth is now picking up Figure 22:The increase in productivity is helping ULC come down even as wage growth picks up Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research-3-2-101234-25-20-15-10-502000200220042006200820102012201420162018Euro area consumer confidencesurveyEuro area retail sales,yoy%,3mma-rhs-15-10-50510152019961999200220062009201220152019German manufacturing PMI new orders-inventory-1%0%1%2%3%4%5%6%7%1990199319961999200220052008201120142017US productivity growth00.511.522.533.54-6-4-2024682005200720092012201420162019ULC%chg yoyCompensation%chg yoy 4 June 2019 Global Equity Strategy 9.but PMI new orders and CEO business confidence are consistent with much weaker growth than consensus US PMI new orders(as opposed to the more volatile,more globally focused ISM)are now likely to be close to their low,being consistent with almost zero growth.Figure 23:US PMI manufacturing new orders have declined to below 50 Figure 24:The decline in US PMI new orders appears consistent with a stagnant US economy and this is unlikely to fall lower Source:Refinitiv,Markit,Credit Suisse research Source:Refinitiv,Markit,Credit Suisse research CEO business confidence tends to lead investment by around 6 months and is consistent with nearly flat capital spending growth.Figure 25:US CEO confidence is consistent with a further decline in capex Source:Refinitiv,Credit Suisse research We would admit that the leading indicators of US growth are generally weaker than the lagging indicators of growth.4749515355575961636567201020112012201320142015201620172019US PMI Manufacturing new ordersUS ISM Manufacturing new orders-5-3-113530354045505560657019972002200820132019US PMI Manufacturing new ordersUS real GDP growth,pushed back 1Q(rhs)-25%-20%-15%-10%-5%0%5%10%15%20%25%2030405060708019781984199019952001200720132019US CEO confidence Index(lhs,2q lead)US Capex yoy(rhs)4 June 2019 Global Equity Strategy 10 Figure 26:The lead indicators of US growth are in general weaker than the lagging indicators Source:Refinitiv,Credit Suisse research Even here there is some room for encouragement if we look at employment.Both the Kansas City Fed and initial jobless claims suggest that employment growth is unlikely to slow much from here.Payroll empl