Uncertainty has increased materially in key regions of the World. In the U.K., Brexit uncertainty could drag on for a few years. Globally, the next big uncertainty surrounds the U.S. presidential election, although that issue will be clarified in a few months.
Executive Summary Upgrade U.S. to Overweight from Neutral. Earnings estimate revisions turned sharply positive, adding to other favorable fundamentals including margins, share buybacks. Information Technology: Still Neutral; Earnings Outlook Remains Unfavorable. We downgraded Information Technology to Neutral last month reflecting, in part, negative earnings estimate revision trends and a deceleration in expected earnings momentum. Both… Read more »
Our earnings momentum metric has been refined. In addition, we have also introduced a methodology for weighting ESG factors in sectors and regions. These modifications have resulted in an unusually large number of changes in recommendations.
There is no consensus about the weight to be given to ESG factors in investment decisions. We have taken a first step in addressing this issue.
Building on the recent analysis in our Regional and Sector Strategy: Monthly Update, we continue to embrace an outlook for just a single-digit increase in profits in 2016, which is in contrast to consensus estimates that imply a 21% gain in earnings.
We remain Overweight Information Technology (largest weighting in Overweight North America region) and Consumer Discretionary (largest weighting in Japan, our other Overweight). We continue to avoid regions with heavy exposure to commodities, most notably Latin America (Underweight), South Africa and Russia (both ranked Neutral).
Effective national governance (“G”) facilitates a country’s efficient transformation of environmental resources (“E”) into wealth. Both are strongly influenced by social factors (“S”). By way of example, France’s social objective of maintaining a rural economy necessitates heavy government intervention and likely detracts from its potential for economic development.
On February 9, 2016, the US Supreme Court (SCOTUS) granted a stay to the implementation of the CPP rule by the US Environmental Protection Agency (EPA). In our view, the intensity of the challenge from the states and certain industries, and the SCOTUS ruling that CPP should be halted while being litigated, demonstrates that the CPP has significant implications for the sector.