Sector Strategy: Upgrade Information Technology (strong relative earnings momentum outweighs rich valuation); Downgrade Utilities (weak relative earnings momentum). Financials remains the most favored sector; Health Care still Unattractive. On top of fundamental factors, interest rate increases would benefit Financials, hurt Utilities.
Regional Strategy: Upgrade Australia (robust economy drives very strong relative earnings momentum); Downgrade UK (cooling economy after post-Brexit growth spurt), Russia (deteriorating earnings momentum likely associated with stagnant oil prices).
ESG Matters More to Regions than Sectors. In our regional model, ESG factors have a combined 18% weight. Australia ranks highly in terms of both governance and environmental metrics.
Figure 1: Sector Rankings Figure 2: Regional Rankings
Source: Cornerstone Capital Group
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Michael Geraghty is the Global Equity 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.