Global equities post robust returns

Global equities are posting surprisingly robust returns since the start of 2019 after suffering heavy losses in the last quarter of 2018, according to global equities investment manager Hexavest.

The equities succumbed to the world PMI downtrend in the latter part of 2018, but the recent divergence was somewhat perplexing, according to the Haxavest’s co-chief investment officer, Vincent Delisle.

“Still, the extent of the Q1/19 V-shaped equity recovery, and its pervasiveness, in our view appears questionable in the context of further deterioration in the macroeconomic landscape,” he said.

Another factor was the reversal in the US monetary policy expectations which marked a key shift in Q119 and represented a major reversal in interest rate expectations, taking away a major headwind that caused havoc last year.

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Delisle said that treasury yields declined 15-20 basis points in 2019 as investors swapped their rate hike scenarios for a scenario of a prolonged pause and an imminent end to quantitative tightening.

As far as the reminder of the year was concerned, the company expected that recent double-digit returns would continue to discount a notable improvement in global macroeconomic conditions for the second-half of 2019 that would power earnings growth.

At the same time, record levels of stock buybacks would be contributing to the market’s ascent.

“We remain doubtful that global growth will quickly improve in light of more moderate U.S. momentum and still-weak Asian export data,” Delisle said.

“Similarities between today and the 2016 market bottom are also shaky. Equities, PMIs, and earnings revisions bottomed in the spring of 2016, with fiscal (U.S. tax reform) and monetary stimulus combined to pro-growth policies in China setting the stage for the 2017 synchronized global economic rebound.

“Our game plan for 2019 was/is to look for bottoming macro signs in order to gradually increase our cyclical exposure. We have modestly increased cyclical content in emerging markets, Europe and Asia since late 2018, but our exposure and positioning in U.S. equities remains cautious.”