If you’d like to hear more, here’s another five minutes. While you’re waiting a quick reminder that you can subscribe to this podcast on Apple, Spotify, and other major providers.
Now, the details.
Takeaway #1: Main Topics In Our Conversations With European Based Equity Investors Last Week
• We spent last week meeting equity investors throughout Continental Europe in a number of countries.
• Many meetings started out with a fairly positive tone and pride regarding how European equities have been outperforming US equities recently. While few articulated an outright bullish view on Europe, the idea that governments were doing a lot to prop things up was noted alongside mounting uncertainty about the US.
ket will have a tough year in:
• Key questions involved which sectors in the US would benefit the most from US Dollar weakness (a trend in place since October) and China’s reopening (where the discussion still seems early days).
% at YE:
• As usual, sector views were a hot topic, particularly Tech (with interest in our observation that the rate of upward EPS estimate revisions for Semis has been near historical lows, but Software still has plenty of room to fall), ….
• Health Care (where most agreed with our assessment that the sector is no longer cheap), Staples (where we didn’t encounter too much pushback on the idea that it’s become highly overvalued and fundamentals are at risk if the economy is worse than expected), and Industrials (where we noted that the sector is expensive but may be starting to transition into the next big growth story due to reshoring), and REITs (given the general interest we sensed in high dividend yield plays).
For The US Equity Outlook In:
• In our conversations about European equity outperformance, investors were quick to highlight how US equities are expensive relative to European equities, something our work confirms.
• Most also noted that European equities typically outperform non-US equities when Value is beating Growth. Our work also confirms that the Growth/Value trade has been mostly positively correlated with the US/non-US equity trade over time, and that a leadership shift back to Value should, in theory, be accompanied by a shift in leadership back to non-US equities. The correlation between Growth/Value and US/non-US has admittedly broken down recently and recent outperformance by Europe may represent the start of a recoupling of these two themes.
Wrapping up with Takeaway #3: Potential Sector Beneficiaries Of A Weaker US Dollar & China Reopening
In our discussions of how the:
• In terms of what sectors may benefit from a weaker US Dollar, our work suggests that within the S&P 500, EPS revisions trends for Industrials, Materials, Staples, and Tech are most sensitive to US Dollar trends and may stand to benefit most from a return of US Dollar weakness.
o International revenue exposure is also higher than other sectors for Tech, Industrials, and Materials.
o That being said, we caution investors that the year-over-year trend matters most and that at current levels, the DXY would not stop showing gains on a year-over-year basis until late in 2Q23, meaning that currency pressures will still be in place a while longer.
e., China). But our review of:
any new themes that emerge as:
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.
