60 seconds with Matt Hudson: The change in leadership in equity markets
Matt Hudson, Head of Pan-European Business Cycle, explains the shift we are beginning to see in equity markets to focus on companies with interesting valuations and the potential to offer good yields and dividend growth.
The business cycle, but not as we know it
Since the trough in the economic and market cycle in 2008/9 we have moved from recovery into the expansionary stage of the business cycle, but it is an expansionary phase missing some of the key features we would normally expect:
- Real wage growth has been anaemic
- The capital investment cycle has failed to fire
- Interest rates remain at rock bottom levels
The lack of global growth has meant investors have invested in those companies that have safer characteristics; bigger market capitalisation; and provide a higher safer yield. These have been the dominant investment areas, but we are beginning to see a change.
A change in equity market leadership
Within the longer cycle there have been a number of mini cycles and we are witnessing the start of one now. A fall in the oil price, an improvement in European credit conditions and the benefit of a weaker currency is helping UK and European equities.
We are beginning to see a shift in the leadership of the equity market from large cap defensive assets to more interesting cyclical companies, perhaps not with the same quality, but with more interesting valuation characteristics and the potential to offer good yields and dividend growth.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.