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By Simon Senior and Dilara Mukhomedzhanova
simon.senior@jpmorgan.com, dilara.mukhomedzhanova@jpmorgan.com
AS OF APRIL 2011
European Indices (U.K., France, Germany, Switzerland)
All quotes in Euros
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Source: J.P. Morgan's Investment Analytics & Consulting Group, J.P. Morgan Equity Research, Morgan Markets, Bloomberg, Rimes
Commentary
The first quarter of 2011 witnessed numerous macro headwinds, most notable of which were the spike in oil prices, the Japanese earthquake, mixed economic activity data in the U.S. and a sharp pick up in EUR/USD. However, European equities proved quite resilient despite this adverse backdrop, with MSCI Europe appreciating by 2%. Energy and Financials were the two best performing sectors. In particular, Banks caught many UW investors by surprise due to their strong outperformance in January as peripheral sovereign stress eased. The sharp rally in financial stocks left both cyclicals and defensive sectors underperforming the broad market. However, following the Japanese earthquake of mid-March, Cyclicals resumed their uptrend, driving the market to new cycle highs into the start of Q2. In terms of valuations, European stocks continued to trade at an undemanding forward PE multiple of 10.8x at the end of March, offering a 19% discount to the long term median.
Asian Indices
All quotes in Euros
Source: J.P. Morgan's Investment Analytics & Consulting Group, J.P. Morgan Equity Research, Morgan Markets, Bloomberg, Rimes
Commentary
- The ASX200 index continues to trade in a tight range, dating back to September 2009, falling by 1.9% year to date. Recent volatility (EUR denominated) appears to be driven more by the FX markets than underlying fundamentals.
- China’s stock markets have been markedly volatile since year 2011, on the back of the rising CPI concerns and the resultant monetary tightening measures. From February 1, 2011 to April 30, 2011, MSCI China rose 4.3% to 69.31 points, outperforming MSCI EM by 1.2%. Sector wise, during the period, the Materials sector was the best performer (up 12.6%), followed by IT (+9.8%), Energy (+6.8%), and Consumer Staples (+6.2%). Industrials sector was the worst performer, declining by 4.6% for the period.
- Market sentiment remains weak in Hong Kong. Amid concerns over continued monetary tightening in China, political unrest in the Middle East and Japan’s earthquake, the Hang Seng Index fell by 7.1% during the 4 months to April. Added to these external issues, local inflation is rising and talk is of interest rate rises.
- The appreciation of the Singapore dollar (+4.6% versus US$ and +2.3% versus
J.P. Morgan Asia Dollar Index) could impact EPS growth contributions from sectors deriving earnings from overseas. General economic deceleration (particularly against a high 2010 base) has led to a decline in GDP estimates.
Source: J.P. Morgan's Investment Analytics & Consulting Group, J.P. Morgan Equity Research, Morgan Markets, Bloomberg, Rimes
- Early thoughts that the Japanese economy was rebounding after the dip in Q4 2010 (in local CCY terms) were dashed by the earthquake and its aftermath. Direct damage from the quake, including affect on power supplies along with disruptions
to the supply chain, has driven down the economy and market sentiment. Overall the market is down 13.5% since the start of 2011.
Source: J.P. Morgan's Investment Analytics & Consulting Group, J.P. Morgan Equity Research, Morgan Markets, Bloomberg, Rimes
- South Korean KOSPI is marginally up (+1.16%) over 4 months to April. February’s fall (-7.4%) was due to potential impact of Middle East unrest on local economy. Markets rebounded in March (+8.2%) due to expected improvement in production orders as a result of earthquake in Japan. Rising global energy prices continue to raise concerns over growth in inflation levels.
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