Report Wall Street italia
Of Paul Casson (Artemis)
In the 2017 a began to appear fundamental change globally. Growth has accelerated in all regions of the global economy. Signs of inflation ineurozone were such as to induce the ECB to consider the possibility of gradually reducing its purchases of securities.
In many cases, however, it appeared that investors had passed a good part of the time 2017 to remain anchored to deflationary fears of the past rather than taking note of the new economic reality. Indeed, there have been long periods where the value of expensive stocks with slower growth (ma less sensitive to the economic cycle) earnings rose more than that of stocks with cheap prices but faster earnings growth.
When i interest rates they went down, buying secular growth or bond-like stocks worked, thanks precisely to low interest rates and a low inflation rate. Such stocks typically do not perform well when interest rates instead rise. So, if he 2017 it was the year in which economic conditions began to change, it is possible that the 2018 is the year in which investors in Europe begin to adapt to new macroeconomic reality? And what others changescould have in store the 2018?
Inflation has started to rise again. In the past it was said that this was "only" due to the increase in oil pricesi (reflation deniers love terms like “only” and “but” as if the facts can be ignored just because their theories don't predict them). There are several factors that contribute to the rise inflation. A faster economic growth it is typically the result of higher demand, which results in companies increasing their prices and, to follow, in one demand for higher wages by workers to keep up with prices.
The German trade union IG Metall, for example, asked for a salary increase of 6% to Volkswagen for the 2018. Wages of metalworkers, they will not increase to the same extent, Obviously, but even half of that increase would be far above target inflation 2% from the BCE. Personally, I think the increase will be around 4%. Workers who receive pay raises tend to consume more, causing demand to rise e, potentially, inflation.
If I were to draw up a ranking of the current risks of the stock markets, I would put not there first Brexit, Trump o to North Korea my (extremely) expensive growth stocks that every investor already has in their portfolio, whose valuations are supported by low interest rates. It makes no sense to assume that the investment strategies that worked when interest rates fell will continue to work even when interest rates rise. If this were the case we could easily conclude that there are good strategies for all seasons. However, the past teaches us that nothing in the stock markets lasts forever.
Today the relationship between growth and value is perhaps not at its extreme levels 2016 but it's not very far away. It's not just a question of relative valuation but it's cheap cyclical companies that are largely fueling earnings growth in Europe: banks and building societies, of discretionary consumer products, industrial and energy. We believe it is appropriate to invest in these companies in 2018, especially since many of them are still cheap, after years of lagging behind the markets. An important role in favor of the shareholders of these companies is also carried out by the dynamics of the operating leverage in a cyclical upturn phase.
One of the cheapest and most mistreated sectors of the European market is the energy sector. This could change. The energy sector is not a sector loved by investors, as demonstrated by the strong gap that has emerged between the movements of oil prices and the performance of the shares of companies in the sector.
Our impression is that the gap will be filled as share prices rise, which will thus align with the price of oil, as companies announce good news. Concerns about the OPEC meeting of November turned out to be unfounded, with the announcement of production cuts agreed until the end of 2018. In our opinion, all this is more than enough to support the price of oil. Supply is already lower than demand and inventories are shrinking, a trend we believe will last as long as global economic growth remains sustained.
Source: http://www.wallstreetitalia.com/opinioni/le-prospettive-di-mercato-per-leuropa-nel-2018/?utm_source=newsletter&utm_medium=email&utm_campaign=Newsletter:+WallStreetItalia&utm_content=11-01-2018+europa-prospettive-nel-2018-tre-possibilit-per-il-cambiamento+opinioni