Executive Summary

  • Sector implications of Brexit fallout. Uncertainty likely to prevail globally, at least until U.S. presidential election. Major corporate and consumer spending decisions potentially on hold, a negative for Information Technology, Industrials, and Consumer Discretionary (downgraded to Neutral). Low rates continue to pressure Financials.
  • Regional strategy. Russia and Australia still rank at top of regional model. Both seem relatively insulated from the uncertainty that’s likely to weigh on the U.K., Europe and the U.S (downgraded to Neutral). While a strong dollar will pressure commodities —Materials just 14% of Australian market — oil prices may prove resilient following production cutbacks, a potential positive for Russia. (Energy upgraded to Neutral.)
  • Strategy in sync with Brexit thesis, but not driven by it. Both our sector strategy (neutral or negative on Consumer Discretionary, Industrials, Information Technology, Financials) and regional strategy (overweight Australia, Russia two countries far from the U.K.) are in sync with our Brexit thesis but are not driven by it, with valuation and earnings being the key determinants.

   Figure 1: Industry Rankings

Geraghty.Monthly.Strategy. Fig 1. July 6

Source: Cornerstone Capital Group

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Michael Geraghty is the Global Markets Strategist for Cornerstone Capital Group. He has over three decades of experience in the financial services industry including working as an investment strategist at UBS and Citi.