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Holly LaFon
Holly LaFon
Articles (10163)  | Author's Website |

Causeway Market Commentary: Buy the Cyclicals, the Unpopular and the Neglected

From Sarah Ketterer's firm

January 11, 2019 | About:

2018 ended with investors shedding equities and portfolio risk. All markets have enjoyed the support of “cheap” money. By late 2 by central banks turned negative, led by the United States. For the first time since 2007, US cash yielded more than US stocks an to flatten. Other signs of investor nervousness included the widening of credit spreads and a significant increase in global stock m years.

Risk aversion has become most acute in non‐US developed markets. Stocks in industries such as utilities, real estate, food & staple personal products, telecommunications and pharmaceuticals typically outperformed overall markets in most regions in the fourt and the United Kingdom, in particular, the combination of tapering quantitative easing, concerns over a potential disorderly Brex European corporate earnings sensitivity to global trade likely unnerved investors. This may explain why European equities have “ price‐to‐earnings (“P/E”) lows and dividend yields have risen nearly to Euro Crisis levels. UK stocks de‐rated severely in 2018, and cheapest levels in the past 25 years (except during the global financial crisis “GFC” in 2008‐9) on a dividend yield basis. Measured yield premium, the UK stock market has only been cheaper twice in the past 100 years (during World War I and World War II)1.

Exhibit 1 illustrates the defensive valuation premia across the major geographies at year‐end 2018. EAFE markets contain the hig defensives/cyclicals, not only relative to the other geographies but even on a self‐relative basis; the current defensive premium is occurred during the height of the GFC. At year‐end 2018, for example, UK beverages traded at all‐time high valuations (typical P banks languished at discounts to book value and at single digit P/E multiples.

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About the author:

Holly LaFon
I'm a financial journalist with a Master of Science in journalism from Medill at Northwestern University.

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