Markets: Medium-term negative view on risky assets – Nordea Markets

Analysts at Nordea Markets are sticking to their medium-term negative view on risky assets and suggests that their expectations for profit margins are too high given slower growth and rising wages.

Key Quotes

“Our earnings revision indicators are starting to turn negative. Positioning is overweight risky assets globally and profit-neutral equity valuation measures more elevated than during the 2015-16 setback. P/E levels could be challenged more by current interest rate levels and tightening central bank liquidity. Our broad GDP indicators are sending signals that our rather bleak macro scenario could be too optimistic, spelling more trouble for 2019-20 EPS estimates.”

“We do not expect a global recession though, due to low global real short rates and fiscal stimuli. Short term, equities have been starved of good news, so the tariff postponement might help trigger a bounce, which we would advise to sell into.”

“We continue to advocate for a value-based investment style owing to the attractiveness of relative valuation, which our new study of the global market demonstrates. Given the clear evidence that value traits offered defensive characteristics during the latest turmoil, we believe style rotation should have further to run. Although we see less upside risk in bond yields, we demonstrate that a worsening growth outlook should also lead to contraction of multiples and bring reduced valuation differences. It does suggest that high quality and growth traits should not be ignored though, and so we argue that GARP and reasonably priced quality should more firmly take the baton from momentum.”