Lyxor’s research exposes potential in Italian equities, Spain government bonds, Japanese prospects and the FTSE…
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EURO AREA SHOULD SURPRISE ON THE UPSIDE
SG Cross Asset research in its Q3 2013 MAP publication highlights three potential sources of positive news flow in the Eurozone. The ECB continues to protect the banking sector, eradicating systemic risk and pushing up (global) bank valuations. Austerity policies have been strongly delayed, thus allowing an acceleration of reforms that aim to improve competitive positions. Finally, low growth will allow the ECB to continue its ultra easy money policy, supporting a liquidity-driven story for markets. They strongly re-weight euro zone assets especially peripheral equities like Spain and Italy.
ITALIAN EQUITIES SHOW ATTRACTIVE VALUATION METRICS
The Italian equity market appears more attractive than the European average and, assuming continued economic healing and convergence within the Eurozone, it appears likely to outperform core markets for some time. The valuation metrics are attractive with the relative price to book vs Europe or the relative price cash flow below long term average and on a cyclically adjusted basis the dividend yield is also far above long term average.
RELATIVE PRICE TO BOOK VALUE RELATIVE DIVIDEND YIELD
THE FIGURES RELATING TO PAST PERFORMANCES REFER TO PAST PERIODS AND ARE NOT A RELIABLE INDICATOR FOR FUTURE RESULTS. THIS ALSO APPLIES TO HISTORICAL MARKET DATA.
SPAIN GOVERNMENT BOND – PERIPHERIAL DEBT FOR THE YIELD
STRONG SUPPORT FROM THE ECB.
Low growth will allow the ECB to continue its ultra easy money policy, supporting a liquidity-driven story for markets. SG Research is using the more volatile global markets in Q3 to strongly re-weight euro zone assets.. (Source: SG Cross Asset Research, Q3 2013).
SPANISH GOVERNMENT BOND YIELD OFFER BETTER RISK RETURN PROFILE THAN THE EUROZONE INVESTMENT GRADE GOVIES:
To investors looking for yield, Eurozone investment grade bond market offers limited attractiveness. Spanish sovereign debt is an interesting alternative to pick up yield. It offers an asymmetric risk profile with decreasing risks of deterioration thanks to the ECB/ESM backing and an attractive yield.
ATTRACTIVE RISK RETURN VS EUROZONE
Source: Bloomberg, MTS indices as of 31/5/2013. THE FIGURES RELATING TO PAST PERFORMANCES
REFER TO PAST PERIODS AND ARE NOT A RELIABLE INDICATOR FOR FUTURE RESULTS. THIS
ALSO APPLIES TO HISTORICAL MARKET DATA
FTSE : REWEIGHTING EURO ASSETS WITH ATTRACTIVE VALUATION
EURO AREA SHOULD SURPRISE ON THE UPSIDE
SG Cross Asset research in its Q3 2013 MAP publication highlights three potential sources of positive newsflow in the Eurozone. The ECB continues to protect the banking sector, eradicating systemic risk and pushing up (global) bank valuations. Austerity policies have been strongly delayed, thus allowing an acceleration of reforms that aim to improve competitive positions. Finally, low growth will allow the ECB to continue its ultra easy money policy, supporting a liquidity-driven story for markets. They strongly re-weight euro zone assets especially peripheral equities like Spain and Italy.
ITALIAN EQUITIES SHOW ATTRACTIVE VALUATION METRICS
The Italian equity market appears more attractive than the European average and, assuming continued economic healing and convergence within the Eurozone, it appears likely to outperform core markets for some time. The valuation metrics are attractive with the relative price to book vs Europe or the relative price cash flow below long term average and on a cyclically adjusted basis the dividend yield is also far above long term average.
RELATIVE PRICE TO BOOK VALUE RELATIVE DIVIDEND YIELD
THE FIGURES RELATING TO PAST PERFORMANCES REFER TO PAST PERIODS AND ARE NOT A RELIABLE INDICATOR FOR FUTURE RESULTS. THIS ALSO APPLIES TO
HISTORICAL MARKET DATA.
JAPAN – BRIGHTER PROSPECTS
JAPAN SO FAR SO GOOD
Japan’s brighter economic situation and prospects offer a sharp contrast with the rest of the world. Boosted by Shinzo Abe’s ambitious reflation policy, activity is recovering, and growth estimates are continuously being revised upward to presently 1.7% in 2013 and 1.5% next year (Bloomberg consensus). Confidence has returned in Japan as evidenced by most consumer and business surveys. Hard data is improving as well. we are confident that the economic momentum will remain robust in the second half of the year. (Lyxor Cross Asset research Q3 2013)
JAPAN OFFERS THE MOST UPSIDE AMONG DEVELOPED MARKETS
Japan markets are being driven by one of the most aggressive monetary stimuli in history. The reflationary monetary policies combined with fiscal stimulus and industry reforms should continue to drive equity prices higher. Japan’s equities represent the highest ranking among equity markets in our ranking system. The recent 22% pullback since May also presents an attractive entry point. Given that the current round of stimulus is larger and coordinated with other stimulatory measures, the equity rally will likely be longer and more durable than other rallies. (Lyxor Cross Asset research Q3 2013)
Japan trades below its historical P/B valuation
Source Lyxor Cross Asset Research Q3 2013. THE FIGURES RELATING TO PAST PERFORMANCES REFER TO PAST PERIODS AND ARE NOT A RELIABLE INDICATOR FOR FUTURE RESULTS. THIS ALSO APPLIES TO HISTORICAL MARKET DATA.
Disclaimer
This document is for the exclusive use of investors acting on their own account and categorized either as “eligible counterparties” or “professional clients” within the meaning of Markets in Financial Instruments Directive 2004/39/EC.
Although this publication includes investment recommendations issued from the investment Research departments of Société Générale and Lyxor Asset Management (Lyxor AM), it is prepared by Strategy department Lyxor AM.
In accordance with the European Market in Financial Instruments Directive (“MiFID”) as implemented in the General Regulation of the French Autorité des Marchés Financiers, this publication should be treated as a marketing communication providing general investment recommendations and should not be treated as a research report issued by the Research Department of Société Générale or Lyxor AM. This document has not been prepared in accordance with regulatory provisions designed to promote the independence of investment research, and neither Société Générale not Lyxor AM, as investment services providers, are subject to any prohibition on dealing in the financial instrument or instruments ahead of the dissemination of this publication.
This publication includes investment recommendations issued from Société Générale’s investment Research department which has set, in accordance with applicable regulation, effective administrative and organizational arrangements, including information barriers to prevent and avoid conflicts of interest with respect to the investment recommendations contained in this publication.
Research publications supporting this document were issued on their stated publication date and may have already been acted upon by clients of Société Générale.
Société Générale is a French credit institution (bank) authorised by the Autorité de contrôle prudentiel (the French Prudential Control Authority). Lyxor AM is a French investment management company authorized by the Autorité des marchés financiers and placed under the regulations of the UCITS Directive (2009/65/CE). Lyxor AM is represented in the UK by Lyxor Asset Management UK LLP, which is authorized and regulated by the Financial Conduct Authority in the UK (FCA reference number 435658).
Source: ETFWorld –
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