UK EQUITIES VALUATIONS NOT STRETCHED BUT...

UK EQUITIES VALUATIONS NOT STRETCHED BUT…

The outlook for the UK economy is not bright but the outlook for the UK equities could be bright despite public spending cut because improved corporate earnings and attractive valuations point to low but positive returns over the next twelve months accompanied by greater volatility. The “V “shaped recovery becoming “U” shaped as the impact of stimulus measures fade. But I think the economic recovery will continue albeit slowly and uncertainty over the strength of the recovery will keep UK equity markets volatile. UK commercial property still in a low rate environment and returns will be capped by a lack of lending to this sector. But I still positive about the outlook for UK equities in spite of the risks to the UK macroeconomic environment because more than 70 percent of FTSE 100 revenues are generated overseas so the index remains resilient to the any renewed downturn in the domestic economic outlook. I believe that indices that are set to deliver earnings growth of around between 15 to 20 percent over the next twelve months. I would view these forecasts are achievable. So it could create opportunities for long term investors.  

I favor some of the following stocks.

Amec                               -        1045.00 p

BAT                                 -        2461.00 p

National Grid                     -        582.00 p

Reckitt Benckiser                -        3416.00 p

Renishaw                          -        1212.00 p

An investment that has strong fundamental can never go wrong.

GERMANY EQUITIES OUTLOOK IN OCTOBER 2010

GERMANY EQUITIES OUTLOOK IN OCTOBER 2010

 

I consider German equities to be attractive. Germany economic outlook has been enhanced due to strong recovery of exports, pick up in investments, and resilient labor market. Germany continues to be one of the world’s strongest net international investment positions at 38% of GDP in 2009. Germany has expressed its commitment to reversing its fiscal imbalances through the government’s four year consolidation programme aimed at reducing the budget deficit to below 3% by 2013. In addition to that growth forecasts for corporate earnings in Germany are significantly higher due to the weak euro and cost cutting undertaken during the recession. A weak euro is good news for many exporters operating in Europe. It makes them more competitive on the world stage and also increases the value of their overseas earnings. On a short term view the positive economic and company outlook create confidence and give boost to the markets. Meanwhile the market is approximately 30 percent lower today than it was at the earnings peak. As a result valuations are looking attractive. I believe that DAX based on 12 months forward earnings was 10.7. This compares with 20 year median of 15.8. I favor some of the following stocks   

Linde                                -        97.52 EUR

Bilfinger Berger                  -        53.75  EUR

Hugo Boss                         -        44.10  EUR

Hochtief                            -        63.62  EUR

Continental                        -        57.02  EUR

Volkswagen                       -        81.08  EUR

SWISS EQUITIES OUTLOOK IN OCTOBER 2010

SWISS EQUITIES OUTLOOK IN OCTOBER 2010

Swiss economy expanded 0.9 % in Q2 2010. Switzerland growth forecast for 2010 has been raised from 1.8 % to 2.7%. I anticipate that swiss economy marked slow down due to strong appreciation of swiss franc and the declining momentum of the global economy. The export of goods in the second quarter had significantly slower momentum than in first quarter due to slowing growth internationally coupled with appreciation of swiss franc. In addition to that business expectations among industrial companies particularly among companies with a strong export focus declined slightly but economic indicators for the domestic economy especially consumer sentiment remain positive. The swiss business environment is likely to remain choppy. The decline in investment yield will be key challenge for the industry.  I believe that there is no sudden economic collapse in the second half of the year but rather a gradual slow down.

SNB statement sound increasingly cautious that the possibility of deflation at the beginning of 2011. It maintains its expansionary monetary policy due to lower risk of inflation. It is leaving the target range for three months LIBOR unchanged at 0.00-0.75% and intends to keep the LIBOR within the lower part of the target range at 0.25%    

Let me conclude that modest growth should continue in the coming months but stock prices are unlikely to rise at the pace they have achieved in the last nine months. So equity valuations could come under significant pressure if growth disappoints or interest rate rise more than expected pointing to the risk of sudden correction in the equity market. As of now, valuations are favorable because of most of the indicators are still below the historical average. Swiss market does not appear to be materially overvalued compare to US. I put neutral in swiss equities.

My favorite stocks are:

Novartis                           55.70 CHF  

Richemont                         46.14 CHF  

Swatch                            359.80 CHF  

Swisscom                         397.00 CHF  

Syngenta                          246.80 CHF

An investment in knowledge always pays the good return in the future.