by Macroview Fears about economic growth have been spreading from China to other markets. “Just where is global growth heading?” seems to be the question uppermost in every investor’s mind. With no clear answers forthcoming to that question, the corrective spell on risk assets ran on through September, dragging all equity markets into the red zone. How steep the slides were can be traced to concerns to the fore at the moment. Markets reliant on demand from China tumbled: Latin America down 7.7%; Japan down 7.6%. The German stock market, unnerved by the VW Group’s troubles, fell by nearly 6%, with a knock-on effect on the Stoxx Europe 600 which dropped 4%. The S&P 500 whose corporate earnings are less exposed to the global economy declined by a ‘mere’ 2.5% over the same period. This unsettled atmosphere marked by uncertainty is reflected in high degrees of volatility: 24% in the US and 32% in Europe at end-September. Our research reveals that, once levels like those are reached, volatility tends to stay pitched up there for several weeks. Earnings growth forecasts for 2015 barely budged during September and currently still stand at +1% for the S&P 500, +6.3% for the Stoxx Europe 600 and +20.5% for the Topix. Expectations for next year work out at +9.6%, +9.3% and +8.3%, respectively, but these figures do betray some erosion from the double-digit rates being projected in May.
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Fears about economic growth have been spreading from China to other markets. “Just where is global growth heading?” seems to be the question uppermost in every investor’s mind.
With no clear answers forthcoming to that question, the corrective spell on risk assets ran on through September, dragging all equity markets into the red zone.
- How steep the slides were can be traced to concerns to the fore at the moment. Markets reliant on demand from China tumbled: Latin America down 7.7%; Japan down 7.6%. The German stock market, unnerved by the VW Group’s troubles, fell by nearly 6%, with a knock-on effect on the Stoxx Europe 600 which dropped 4%. The S&P 500 whose corporate earnings are less exposed to the global economy declined by a ‘mere’ 2.5% over the same period.
- This unsettled atmosphere marked by uncertainty is reflected in high degrees of volatility: 24% in the US and 32% in Europe at end-September. Our research reveals that, once levels like those are reached, volatility tends to stay pitched up there for several weeks.
- Earnings growth forecasts for 2015 barely budged during September and currently still stand at +1% for the S&P 500, +6.3% for the Stoxx Europe 600 and +20.5% for the Topix. Expectations for next year work out at +9.6%, +9.3% and +8.3%, respectively, but these figures do betray some erosion from the double-digit rates being projected in May.
With share indices on the slide, valuation levels have improved, moving back towards their long-term averages, with P/E ratios of 14.5x for the S&P 500, 13.3x for the Stoxx Europe 600 and 12.4x for the Topix.