MARKET UPDATE – MARCH 2020
As we have said before, the acceleration in growth that was priced into equity markets in the first half of 2019 has continuously been pushed out over the last year. Any remaining hope for this growth acceleration this quarter (and possibly next) has now been eradicated by the spread of the virus, fear of further constraints on economic activity, and in particular severe supply chain disruptions.
In addition, the consensus outlook for a rapid rebound in earnings, which we always felt was overly optimistic will likely come under further pressure. The key question for investors at this stage is whether enough has been priced into equity markets after the February collapse. The global equity market now trades on a forward P/E of 15.2x, compared with 16.8x in mid-February, the US market on 17x(vs19.5x), Europe on 14.4x vs 15.8x and Japan on 13x vs 14.2x. Notwithstanding the expected downgrades to earnings estimates, clearly markets are a lot cheaper than they have been since last summer. Added to the mix is the clear shock to global growth. This raises the possibility over an over reaction by monetary and fiscal authorities, particularly in China, and the risk that authorities over stimulate has clearly risen