60 seconds with Matt Hudson on 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.
26 May 2015
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.
Important Information: The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.