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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

Matt Hudson

Matt Hudson

Head of Business Cycle Equity Team

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.

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