Equities
European real GDP growth is stabilizing, so why would European equities continue to trade sideways for the remainder of the year? The answer lies with nominal growth and its impact on earnings.
Outperformance of Growth sectors most likely has run its course. It is time to shift Growth vs. Value allocation to neutral, downgrade Semis, and upgrade Energy to overweight.
Numerous divergences have opened up between global risk assets and global business cycle variables. These gaps are unsustainable, and odds are that the recoupling will occur to the downside with risk assets selling off.
China has generated 41 percent of the world’s economic growth through the past ten years, al-most double the 22 percent contribution from the US. Now that the Chinese growth engine is failing, we explain why it is arithmetically impossible for world growth to maintain the altitude of the past few decades. And we discuss an important investment implication.
The global economy will not enjoy an “immaculate disinflation” but will suffer a very maculate one due to China’s growth slowdown and restrictive monetary policy in the developed world. Investors should stay overweight low-beta assets.
