Global Markets: Factors Align For Equity Gains; + BMI Updates Latin America Sovereign Risk Ratings
The key factors that we look for in a market – technicals, fundamentals and sentiment – continue to bolster our view for equity upside over the medium term. The German DAX and US Dow Jones are leading the way and still look great, technically. While both look slightly overstretched here at all-time highs, they have excellent support in the event of any major correction, at 8,100 and 14,200, respectively.
Among emerging markets, the Philippines, Thailand, and Turkey (upon which we have a bullish asset class strategy view) have climbed to new all-time highs too. The fundamental outlook is solid, with earnings near their pre-crisis peak, valuations at reasonable levels, dividend yields outstripping government bond rates, and positive earnings surprises outstripping the negative.
And, incredibly at this stage, retail investor sentiment continues to be minimal, with net mutual fund inflows by US investors into equities still negative on aggregate since the rally began in 2009. This stands in stark contrast with the 1990s and 2000s equity bull runs, in which there were major net inflows into equities and outflows from bonds. As such, there is no reason to believe that stocks are entering a bubble due to sentiment alone.
Our full range of equity market views is available to subscribers at Business Monitor Online.
BMI Updates Latin America Sovereign Risk Ratings
Meanwhile, BMI‘s Americas Research team has just completed its quarterly update of our sovereign risk ratings, which cover 19 Latin American and Caribbean countries. For each country, we have scores for ‘ability to pay’ and ‘willingness to pay’, out of 100, which are used to create an aggregate national score. Countries that score 80 and above are rated ‘A’; 70 and above are rated ‘B’; and so on. Each country also receives a market outlook score of 1 to 5, with 1 being the most bullish, to reflect our expectations of the performance of that country’s 5-year credit default swap. Overall, BMI rates 86 countries worldwide. Our sovereign risk ratings are published in our online service and in our weekly Emerging Markets Monitor magazine.
This Week’s Trivia Question
In last week’s question, we asked, which famous British actor played Pakistan’s founding father in a late 1990s biopic, having earlier in his career played a James Bond villain, and subsequently in the 2000s powerful sorcerers (one of which was committed to capitalism) in two epic film sagas? The answer is, of course, Christopher Lee, who played Francisco Scaramanga in The Man With The Golden Gun (1974), as well as Saruman in The Lord Of The Rings trilogy and Count Dooku in the second and third Star Wars prequels. The latter character was a separatist leader ‘committed to capitalism’.
This week’s question concerns the Philippines, which held mid-term elections earlier this week, has the second-best performing stock market in Asia this year, and has received investment grade status from credit ratings agencies. Our question is, which 1950s science fiction novel, made into a Hollywood blockbuster in the late 1990s, featured a Filipino protagonist? (Hint: in the film the hero was played by a fair-haired Caucasian actor. In both the book and the film, Buenos Aires is destroyed.) And, since the new Star Trek film was released recently, which major character was named after a body of water in the Philippines?