So far, the global EPS story remains intact. As Tim Duy (Oregon economist) put it, when you “hard stop” the housing market, through a doubling in mortgage rates, it seems correspondingly difficult to see how such estimates might hold.
But, as others note, management commentary & outlook is still robust. We just had FedEx upgrade guidance, and before that the US homebuilders pointed to still strong conditions.
In my view, management commentary is a lagging indicator. But mostly I get Aussie stock specific takes, which have a 6-month reporting window, so it is plausible that more timely quarterlies (on offer in the US) provide a better/coincident-rather-than-outright-lagging indicator of conditions, something I’ve not seen empirically studied.
The only sector with firm EPS downgrades (looking at the ASX 200) has been the IT names, most of which weren’t profitable to begin with. Consumer discretionary is seen to be over-earning, a view we agree with, and, in our view, actual downgrades to come as a lower-share-of-wallet bites.
Overall, however, global PE’s are pretty compelling. Earnings might well fall (tightening, energy prices) putting the forward PE 2-3 points higher, on average, across the globe, but that would still lead to relatively attractive ex ante returns.
The “everything bubble”, as Cliff Assness termed it, is gone, with just “quite a few things bubble” left (e.g what remains of crypto, NFT’s, SPAC’s, Cathy Wood’s ARKK).
That’s why we are sitting pretty close to our SAA weights in international equities (underweight in Aussie equities).
Some things look good, some things look bad, valuations tie them together with “reasonable” compensation for unknown/uncertain risks, and avoiding a big bet either way seems sensible.
If they fall further, we’ll increase our exposures.
Note, this commentary about buying/selling/risk-management is a function of our earlier allocations, we were quite underweight international equities coming into March, and started adding after war broke out, which impacted everything from European to Emerging to Japanese equities.
Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.
This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.
Please note that past performance is not a reliable indicator of future performance.
General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.
Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.