While the US ruled over other global markets in 2018, 2019 will see emerging markets, Chinese equities and Japanese equities dethrone their US equity counterparts, according to global equities investment manager, Hexavest.
According to Hexavest’s co-chief investment officer, Vincent Delisle, with the US market trading at decade-high premiums relative to international and emerging equities, and since the S&P 500’s earnings lead had appeared to vanish, other regions looked ripe to take on leadership.
“The U.S. index performance advantage faded somewhat in the fourth quarter as signs of slowing domestic momentum erupted through weaker auto and housing activity,” Delisle said. “US retail sales also ended 2018 with significant weakness in December, which is somewhat of a surprise considering still buoyant employment conditions and declining gasoline prices.”
This, coupled with earnings revisions turning negative across the world, and the US following the downward trend, meant sustaining price leadership would be challenging for US equities.
The firm predicted the slowdown in China could trough by midyear, with a pickup expected in the second half. This would be supported by the rising possibility of a trade agreement with the US and additional government stimulus.
“Improving macro visibility in China could also provide a tailwind for companies outside the U.S. who benefit the most from global trade,” said Delisle.
Since Chinese equities and emerging markets had apparently priced in the negative news flow related to the trade tensions, the firm’s view was that the risk-reward outlook for emerging markets, Chinese equities and Japan was superior to that of the US.