Schroders Equity Lens: your go-to lens on global equity markets
Our Q1 analysis highlights the data that matter to global equity investors.
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Global equities ended the year on a high note, rallying by 6.8% in Q4, as a strong earnings season coupled with a relatively stable interest rate environment supported performance.
However, the spread of the Omicron variant, rising inflation and waning monetary stimulus weighed down on valuations.
The best performing region was the US (+10.1%). Europe (+5.1%) and UK (+5.6%) also performed reasonably well (all in local currency terms). In contrast, slowing Chinese credit growth hit EM (-0.4%) and Japanese (-3.9%) returns.
In terms of sectors, performance was relatively mixed across cyclicals and defensives. IT was the highest returning sector (+12.7%), but defensives also did reasonably well, including utilities (+10.4%) and real estate (+9.1%).
Communication services (-1.5%) and energy (+3.3%) were the lowest returning sectors.
Global earnings revision momentum decelerated sharply in Q4. It remains positive in all major equity markets, except EM.
According to our composite valuation indicator, UK and Japanese equities are now trading close to their 10-year historical average.
Meanwhile, EM equities have derated significantly since their peak in January 2021 and are only slightly expensive. In contrast, US and Europe continue to look expensive on most valuation metrics.
In terms of global sectors, energy, financials and materials offer the best relative value. IT, communication services and consumer discretionary look the most expensive.
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