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Roeloff Horne - MitonOptimal South AfricaBe optimistic about owning international stocks facing the global consumer!

The global growth scenario is improving by the day.

The Eurozone economy continues to improve as industrial production and PMI numbers improved in May and June. Consumer confidence also improved and retail sales continue to grow positively as demand for credit continues to pick up the pace. Eurozone deflationary pressures are easing as headline inflation moved to 1.4% in May.

Although US GDP growth slowed to 1.9% p.a. in the first quarter, the US is set to record faster growth in the second quarter as employment continues to grow ahead of expectations as financial conditions eased. According to a US Market Analyst, Elaine Garzarelli and BCA Research, US earnings growth is expected to be in double digits for the quarter and well into 2018 (Fig 1).

Japan is also improving as retail sales accelerated for the sixth consecutive month and industrial production for the 5th consecutive month. Steady conditions prevail in China, although high debt levels continue to weigh on market sentiment. Growing excavator sales, railway freight traffic and exports make us optimistic that the Chinese economy can maintain its pace. Economic recovery also prevails in Russia as both retail sales and industrial production increased for the 3rd consecutive month. In Brazil, PMI numbers improved and retail sales rose for the first time since early 2015 as increased employment, much lower inflation and falling interest rates buoy consumer sentiment and demand.

The contrast is in the UK (Fig 2), as retail and industrial activity weakened due to fading political confidence, while in India economic activity also slowed recently. The improved global growth scenarios led the MSCI World Equity Index higher by 11% for the year to date. The equity market is vulnerable to unforeseen shocks given stretched valuations. Nonetheless, none of the main indicators that have provided leading information in the past are warning of an equity bear market. The profit backdrop remains constructive.

The jump in global bond yields in recent weeks raises the odds of a near-term pullback in stocks. Still, history suggests that equities almost always outperform bonds and cash outside of recessions. If global growth remains strong over the next 12 months, as we expect, stocks are likely to climb to new highs…  <Read the entire article below>

Q2, 2017 - Asset Allocation Report - South Africa


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