Equity Strategy and Market outlook – October 2023

Alastair George believes that the recent surge in long-term bond yields has caught investors off guard. 2023 was supposed to be the year of the bond, following the peak in global policy interest rates and a rapid decline in inflation. Instead, interest rates have peaked but global bond yields have continued to climb as inflation remains stubbornly above targeted levels. We believe the recent increase in long-term yields represents a significant additional tightening of financial conditions which will ultimately prove self-defeating and maintain a positive outlook on the asset class. Global consensus earnings estimates have remained stable in recent weeks, indicating 7% earnings growth for 2023. However, this masks upgrades to the energy sector with modest downgrades elsewhere. We believe investors should keep a close eye on balance sheet strength as companies face a much tougher refinancing environment and some may look to investors to raise equity capital.  We maintain a neutral outlook on global equities as yields on safer debt instruments should attract cautious investors. Valuations for US equities are still high on a price/book basis, especially in the context of consensus forecasts for single-digit earnings growth for 2023. European and UK equities trade close to long-term average price/book levels. 

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