Use stock rallies to reduce risk
Looking ahead, equity total returns will have to rely on earnings as the major driver
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GLOBAL stock markets have rallied since early October. Yet earnings and earnings revisions have been weak. As a consequence, most of the valuation metrics have moved back into expensive territory - a 19 times reported earnings implies a strong 2016 earnings recovery, which we simply do not expect.
Today, analysts expect an 8 per cent earnings growth, which seems out of sync with our global growth forecast of around 3 per cent for 2016.
Central bank liquidity remains the main support as policymakers are most likely to err on the dovish (if not superdovish) side, or tighten but gradually.
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