Short macro observations

  • Markets remain jittery because of so called ‘trade tensions’. We see this as a journalistic excuse to find a reason for the market correction. We do however suspect that markets have been dropping in line with what we have been observing for some weeks/months now: growth is still alive and kicking but growth is slowing. Markets always react on marginal changes so ‘growth slowing’ is sufficient for a pullback.
  • Global Recession Risk remains low however according to our data but China shows most disturbing signs. We still consider the current pullback as healthy with possible entry levels between 3% - 7% lower.
  • Eurostoxx 50 is breaking second channel again, shows negative momentum and is NOT oversold yet based on percentage of stocks trading above 50 day moving average. Next targets seem to be between 3% and 7% lower in a flush-out case scenario. On  a positive note however we see positive divergence between RSI and Eurostoxx 50. In the past few weeks Euro Stoxx 50 has been showing ‘lower lows’ while RSI seem to showing ‘higher lows’. Some technical analysts would flag this as a positive bullish signal that market bottoms are near…
  • Euro Stoxx is trading fair value at 13 times forward P/E and therefore seems more attractive than ever in the past 2 years.
  • Earnings are rising and forward EPS is rising albeit slower than MSCI World which probably explains again why Eurozone is underperforming world markets.





  • On a regional level: emerging markets are strong while G7 shows weak momentum. Nothing seems oversold.
  • Analysts are most bullish on G7 however in terms of 12-month price targets
  • OECD shows strong readings in emerging markets and US. Weak readings show up in Greater Europe and Pacific Japan
  • Fundamental forward EPS changes are very strong in Russia and positive in US and some emerging regions.
  • On the Carry side we observe
    • Very attractive yields:
      • Russia dividend yield of 6% is trading more than 1,5 standard deviation above its average.
      • UK dividend yield of 4,6% is show z-score of 2,5 times above average which seems quite unusual and therefore attractive
    • Very weak yields:
      • Frontier markets and eastern Europe (the run up in eastern Europe prices has taken dividend yields quite below average)
  • On the valuation side
    • We don’t really have equity regions that trade at very unusual low valuations.
    • We do see however some high Z-scores which could point than higher than average valuations over the past 7 years
      • In a 7 year view: US, emerging markets and frontier markets
      • In a 20 year view: no real exceptional high valuations in terms of z-scores versus average
  • Our complete regional model (CR score is a combination of momentum, reversal, macro, fundamental EPS, Yield and valuation) clearly shows emerging markets still leading (except for CECE) and weak markets in US, Eurozone, Nordics & Pacfic Ex Japan (Australia)


  • The combined CR score for our sector model shows
    • Possible strong sectors:
      • Retailers (surprising but valuation low enough given EPS massacre and EPS now even outperforming market)
      • Metals & Mining, Energy Majors, Banks, Insurance, Durables
    • Possible weak sectors:
      • Discretionary retailing (cheaper but strong negative EPS readings)
      • Food, beverage & Tobacco (strong negative momentum but fair value and this sector used to be very expensive)
      • Energy Equipment & service providors: weird sector, still very negative momentum in price action but very bullish action in EPS changes. Sector seems to be trading expensive but that could be an illusion due to currently highly depressed earnings and cashflows.
      • Health care: price pressure due to generics, Trump plans, more regulations but quality and value more interesting than ever in the last 7 years.