| LONDON/NEW YORK, June 16
LONDON/NEW YORK, June 16 Global equities have
recovered rapidly after tumbling this month as technology firms
sold off, suggesting investors remain confident about the last
of the Trump reflation trades but are taking a more discerning
approach to stock-picking.
Despite that recent stumble, MSCI's gauge of world stock
markets is less than 1 percent below its record
highs and investors continue to pump money into shares.
In the week to Wednesday, global equity funds pulled in
$24.6 billion, according to the latest data from Bank of America
Merrill Lynch and EPFR. That was the biggest week of equity
inflows since the U.S. election in November.
"Stocks are still attractive. There's still money on the
sidelines," said Bucky Hellwig, senior vice president at BB&T
Wealth Management in Birmingham, Alabama.
Noting that the market has recently weathered lower
inflation numbers, a more hawkish Fed and less rosy economic
data, he said: "That's indicative that people who are in don't
necessarily want to get out."
The June swoon had threatened to put stocks on track for
their worst two-week run since Donald Trump won the U.S.
presidential election with pledges of tax cuts and
infrastructure spending that enthused investors.
Several aspects of that global reflation trade have already
unwound -- inflation expectations have fallen, the dollar has
given back its post-Trump gains against major currencies, and
commodities -- led by oil -- are on the back foot.
European and Japanese shares, the darlings at the start of
2017, have reversed all of their outperformance versus other
regions, while the sell-off in tech stocks that began with U.S.
bellwethers such as Apple and Amazon, was seen
by some as a sign of wider problems.
Investors put the recent falls at broad index levels down to
significant churn between sectors and geographies as funds lock
in profits in certain richly valued segments of the market, such
as tech, and look to pick up bargains in laggards.
But double-digit earnings growth and attractive dividend
yields backed by a broadly upbeat global economy are enough to
underpin demand for equities, analysts and investors say, adding
that any market wobbles into the summer will be a good
opportunity to put more cash to work.
NOT A DAMP CLOTH
Global stocks currently trade at about 16 times forward
earnings, in line with their average over the past two decades.
Corporate profits, meanwhile, are expected to grow 13 percent
over the next year, which is the brightest outlook globally in
six years, according to Thomson Reuters data.
But patchy U.S. economic data, a more aggressive tightening
stance from the Federal Reserve and the Bank of England, and
worries about valuations in stocks most closely geared to
economic growth have spurred some shifts in allocations.
"Beneath the surface a more nuanced and multi-layered
investment backdrop is emerging," said Michael Ho of UBS Asset
Underscoring both the shifts in allocations and wide
divergence within regions, a league table of global stock market
performance so far in 2017 throws up a contrasting picture
compared to previous years.
Turkish stocks, beaten down last year over political risks,
are the world's best performing major market in U.S. dollar
terms. Greek and Spanish stocks, which bore the brunt of
concerns around the euro zone a few years ago, are meanwhile
battling it out for top spot in Europe, according to BAML.
In terms of sectors, the weakness in tech and segments such
as industrials, chemicals and capital goods, which are sensitive
to the broad economic outlook, has led to a pick up in other,
less favoured stocks.
Safe-haven sectors such as food and beverages or consumer
staples, sometimes considered bond proxies because of their
reliable, coupon-like dividend payments, are back in favour.
Procter & Gamble shares have rebounded nearly 5
percent over the past month, while in Europe shares of Unilever
and Nestle are close to record highs and still
comfortably outpacing the broader market's gains.
Those moves echo recent warnings by brokers including Morgan
Stanley, Credit Suisse and JPMorgan on valuations on European
cyclical stocks. They recommend investors look into buying
dividend-yielding telecoms and real estate instead.
After a brief hiccup, financials stocks, often with large
weightings across global markets, are back in favour.
In the United States, a combination of an expected pick-up
in lending and lighter regulatory and compliance requirements
have made the sector attractive, said Steve Chiavarone, a
portfolio manager at Federated Investors in New York.
Worries that tighter Fed monetary policy might upset the
optimism over equities are being set aside for now, with some
saying a backdrop of healthy corporate earnings mean investors
may view rising interest rates as a sign of a strong economy.
“We think as the Fed gets more active it’s going to throw
gasoline on a fire and not a damp cloth,” Chiavarone said.
(Additional reporting by Caroline Valekevitch and Megan Davies
in New York; Editing by Catherine Evans)