INVESTMENT DIRECTIONS

Shakespearean revels

19 jun 2017
por BlackRock

Measure for Measure

The era is feeling more and more Shakespearean, with tragic—and comic—figures, and surprising twists and turns. The recent U.K. election was the latest in a string of electoral surprises that continue to define the geopolitical environment these days. But for markets, it seems, these events increasingly are “full of sound and fury, signifying nothing,” to quote William Shakespeare from Macbeth.

Midsummer Night’s Dream

The U.K. vote creates more uncertainty about the path ahead for Brexit negotiations, but doesn’t have broader ramifications for global markets. Across the channel, we still like European equities. To be sure, these trades are no longer contrarian. Analysis of flows, price momentum and positioning by BlackRock’s Risk and Quantitative Analysis team shows they have become consensus. But global reflation, strong earnings recovery and attractive relative valuations mean they should still have room to run.

As You Like It

In the United States, earnings momentum has been strong, we’re seeing decent enough economic data and markets continue to chug along to record highs. But valuations are extended, and prospects for tax reform have been fading—although lowered expectations for the latter lower the bar for positive surprises. We’re neutral on U.S. stocks overall, but we favor value, financials, technology, selected health care and dividend growers.

All’s Well That Ends Well

We also continue to favor emerging markets. Again, this is no longer a contrarian trade, but we note that the flows from investors into the asset class this year still do not replace those that were withdrawn in the last couple of years. In China, softer manufacturing activity and weaker commodity prices have added to concerns about China’s economic path, but we don’t see reasons to worry about a near-term hard landing.

The Tempest

In short, despite recent political drama and noise, the economic and earnings backdrop for global markets is positive. For investors, at least for now, these ongoing signs of improved global growth and stronger earnings are “such stuff as dreams are made on.”

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