MARK TO MARKET
fig. 01 / Defensive value in 2018? fig. 02 / Look to the right for opportunities in 2018?
MSCI World, GICS 1 sectors, valuations vs trailing returns Valuation Z-score, 0 = fair value (Left) Market is cheaper compared
MSCI equity indices, total returns, y/y% (Right) to its long-run average.
1.0 2 50
Y: Valuation Z-score, 0 = fair value
Telecoms 45
0.0 Financials Healthcare
Energy
40
0
-1.0 35
30
-2.0
Materials -2 25
IT 20
-3.0
Utilities 15
Consumer stap
-4
-4.0 Consumer disc 10
Industrials 5
-5.0
0 5 10 15 20 25 30 35 40 45 -6 0
X: y/y returns, in % ex-dividends ZA DK US PE NZ IN CN AU SW ID JP TH SE BR EZ CA KR MX RU UK CL MY TR CO
The second chart above is similar to the Elsewhere, the portfolio already
first, but due to lack of space, I cant is exposed to Colombia, and I am
plot the data in the same way. It shows considering adding Malaysia. I am not
that all major global equity markets sure about Russia, to be honest, but I
are up on the yearin local currency havent looked into it at all, so I best
termsand that the majority of them just stay silent on this one.
are expensive. China, Denmark, South
Africa, the U.S. and Peru look like the VALUE OVER GROWTH IN 2018?
most exposed to deliver poor returns The final two charts below finish this
next year. Peru is an interesting outlier piece where it started. Valuations in
here given that many other LatAm U.S. equity sectors suggest that value
markets seem relatively attractive. will outperform next year. But for that
Speaking of which, Colombia, to happen investors need to imagine a
Malaysia, Russia, Turkey, Chile and the version of the world in which the yield
U.K. come out top. Of these, Turkey curve steepens. I am open to that,
is the riskiest proposition in light of but the important question for me is
the political uncertainty and what whether it happens because of falling
appears to be a full-blown balance-of- short-rates or risig long-rates. I cant
payments crisis. The U.K. is interesting quite decide which one I am buying.
too. It makes sense for U.K. equities Finally, investors can optimize their
to perform well in 2018 in light of the exposure to value by realising that
rising likelihood of a soft Brexit. But if the headline value and growth indices
this expectation also leads to a rally in include a lot of the same names,
sterling, it ought to be harmful for the especially on the S&P 500. A pure value
FTSE, at least in local currency. Finally, large-cap strategy could avoid the
markets cant be sure that the deal headline ETFs by just buying Berkshire
signed between the U.K. and the EU last Hathaway, the major financials and
week will stand the test of time. energy, as well as AT&T.
fig. 03 / The key for value to outperform in 2018? fig. 04 / What is value anyway?
3.0 0.95
2.5 0.90
2.0 0.85
1.5 0.80
1.0 0.75
0.5 0.70
0.0 0.65
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