Equity Strategy: November Chartbook - Equities draw support from likely peaking yields, China reopening, as well as still depressed sentiment/positioning

Speaker: Mislav Matejka, Head of Global Equity Strategy.

We believe that equities will be supported by what is still extremely bearish investor sentiment and very light positioning, as well as improving seasonals at this time of the year. Fundamentally, we think that bond yields are likely in the process of peaking. The disinflation phase has already begun, in our view, even as elevated CPI prints continue, and as bond yields keep oscillating around multi-year highs. Inflation remains a lagging indicator of growth, corporate intentions to raise prices have rolled over, as are now peaking intentions to raise wages. Inventories are building, and that should lead to discounting. Out of the four stages of inflation that we see, commodities, goods, services and finally wages, in our view we are currently moving from second to third in terms of stabilization. While the central banks keep tightening at the short end, the long end could begin pricing in an increasing chance of overdoing it, i.e. of a policy misstep. Further, levels of yields should be capped by the weaker activity from here. If that gains traction, it would go a long way in supporting overall equity market multiple. Second, we believe that China offers a potentially positive catalyst in terms of reopening. China sentiment is at rock bottom and any improvement on this front would be notable. Regionally, we stay of the view that UK and Eurozone are not the easy shorts vs the US as most would believe: Eurozone has never traded this cheap vs the US. UK stays our top DM pick. Value was our key OW for the last two years, and we stay positive on Value parts of the market, but a peak in yields suggests Growth style could also stabilize from here. Pure Defensives look the most expensive.

 

This podcast was recorded on 07 November 2022.

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