While global equity markets have been shrouded by pessimistic sentiment for the last six months, the year ahead is much more optimistic, with depressed multiple levels expected to improve, according to T. Rowe Price international portfolio specialist Kurt Umbarger.
Visiting Australia from the US, Umbarger told Money Management that his global equities strategy team had a rosier view of the sector going forward due to a number of compelling fundamentals.
“Number one, you have very low risk free rates as a result of aggressive Federal Reserve action in the United States; you have compelling valuation levels; we are still strong believers that the earnings power of many companies is very strong over the next three to five years as productivity rates continue to improve,” he explained.
He said the investment team was now positioning the portfolio towards opportunities where they could see the potential for depressed multiple levels to re-rate and be appreciated by the marketplace.
“A return of confidence has not fully happened yet and we are in the early stages of what we think is this return, but earnings by and large have not been as weak as many anticipated in the first quarter, with the exception of the financials, which we know have been extremely weak,” he said.
“If you look out again over the next 12 to 18 months, our view is that the marketplace will see a return of optimism after an extremely pessimistic six month period of time and we will see multiples tick up from here.”
