Borsa, who will not get carried away by the roller coaster
Stocks, what's left after the roller coaster in May. The analysis by Peter Garnry, Head of Equity Strategy for BG SAXO
In this update, we look at what happened on the stock market in May. A month that has been a roller coaster ride, we have in fact seen first a sharp decline and then a strong rebound which ultimately led the MSCI World to a flat performance.
Consequently, given the current financial conditions environment, we remain defensive on equities. Among our thematic baskets, the best results were recorded by the “small Chinese giants”, the semiconductors and the energetics.
For actions, the light at the end of the tunnel is still dim
Global equities as measured by the MSCI World Total Return USD Index remained flat in May after a decline of 5.5% over the month as sentiment changed last week, followed on Friday by signs suggesting how inflationary pressures may have peaked. However, Fed member Christopher Waller said earlier in the week that he is willing to aggressively fight inflation by raising rates by up to 50 basis points at each meeting until signs of a cooling of the price hike are seen. . From the other side of the world, echoes Robert Holzmann, a member of the ECB who explained how record inflation in Europe increases the need for a rate hike by 50 basis points also in the Old Continent. Not to mention that the energy and food situation is still worsening, aggravating fears of persisting inflation.
In short, the conditions surrounding us have not changed drastically and our opinion remains on the defensive regarding equities because we expect more restrictive financial conditions, higher interest rates, persistent inflation driven by a worsening of the energy and food crisis as well as by lockdowns. in China due to the low vaccination rate and a zero Covid policy.
Our valuation model on MSCI World is based on seven different metrics that measure elements such as revenue, earnings, cash flows and dividends, among others. It shows that global stocks are still in a standard deviation halfway above the average valuation since 1995. In our view, global stocks should be priced around average given current conditions and the trajectory of financial conditions.
When it comes to our thematic baskets, we saw a big difference in performance in May. Those that have performed best are the small Chinese giants, semiconductors and energy storage driven by direct Chinese political actions to revive growth and a continuous influx of energy storage essential for green transformation. The worst performing thematic baskets are Bubble Stocks, cybersecurity (although it remains one of our long-term favorite themes), cryptocurrencies and blockchain.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/borsa-chi-non-si-fara-travolgere-dalle-montagne-russe/ on Sun, 05 Jun 2022 06:09:43 +0000.