Equity strategy and market outlook – May 2019
In this month’s strategy piece, Alastair notes that the much-anticipated resolution to the US/China trade dispute has failed to materialise. Furthermore, the likelihood of any resolution in the near term appears modest at best. His earlier more positive views on equities for 2019 were contingent on a US/China trade resolution by mid-year and his outlook has therefore become more cautious. A downward turn in survey data and consensus earnings forecasts has been re-established and ebbing global earnings momentum during the past four weeks consistent with softer PMI indices and slowing trade data. Short- and long-term bond yields have fallen in recent weeks, reflecting market expectations of a slowdown. A steady build-up of debt in the corporate sector of China and the US will become a greater issue if the economy slows. Therefore, he believes investors should now focus on balance sheet quality in equity investments at this point in the cycle. He moves to a cautious view on global equities from neutral. Given the still significant rally since the year-end, there is time to reposition portfolios and he believes investors should focus on specific companies with lower than average exposure to cyclical factors and trade headwinds, given the cautious outlook.
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