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Opportunities abound in equities as cyclical upswing continues into 2017: Schroders

Thursday, December 15, 2016 - 16:22

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THERE should be plenty of opportunities for global stock pickers as the cyclical upswing continues into 2017, experts at Schroders said.

The upswings will be supported by pro-active fiscal policies from the new US president, Donald Trump, they said.

  US equities market is poised for further gains, said Simon Webber, lead portfolio manager, global and international equities, and Alex Tedder, head of global equities at Schroders.

A US$600 billion infrastructure package could add around 0.25 per cent to US growth, while a cut in the corporate tax rate from 35 per cent to 15 per cent could add 10 per cent to US earnings growth for 2018.

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"Given that US earnings per share have not grown for three consecutive years, the current momentum in the economy, boosted by the proposed Trump agenda, could deliver double-digit earnings growth in both 2017 and 2018,'' they said in Schroders' latest Talking Point report.

Politics remains a major risk for global equity markets in 2017. European politics will again be the focal point for investors over the coming months. Coming elections in France, the Netherlands and Germany will be defining moments over the political leadership and the future of the eurozone.

"Victory for the establishment parties in these countries will probably allow eurozone equities to climb a significant wall of worry, but any misstep could result in major disruption to bond and equity markets, not just in Europe but on a global basis,'' they explained.

As for emerging markets, politics and rising US rates could be a headwind, but fundamentals are broadly solid or improving. Real (inflation adjusted) rates are already much higher than in the developed world, and higher than they were at the time of the 2013 "taper tantrum", the two noted. The latter refers to a surge in bond yields in 2013, following then-Federal Reserve chairman Ben Bernanke's suggestion of a tapering of quantitative easing.

For banks, the outlook is improving with widespread cost-cutting starting to pay off as regulators stop imposing capital and compliance costs.

"A better revenue environment is also emerging as nominal growth improves and rates move off their historic lows,'' the two said.

"Ultimately, given that our approach is firmly "bottom-up", we view the unwinding of the low volatility bubble as likely to provide a number of opportunities to add to some very good companies across a range of sectors. It is likely that our portfolios will be more cyclical than in the recent past. However, given the uncertainties outlined above, a balanced approach from both a geographical and sector perspective would seem appropriate,'' they added.

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