UK ranks first on Credit Suisse’s regional scorecard, research shows
The UK scores top on regional composite scorecard mainly due to its loose monetary conditions, according to Credit Suisse’s Global Equity Strategy report.
This backs up our overweight in UK domestic cyclicals (homebuilders, media and REITs). However, the UK scores weaker on three other measures (earnings momentum, positioning and macro factors). The weak earnings momentum in the UK is due to the FTSE’s exposure to commodities, GEM and Continental Europe, with only 23% of sales coming from the UK.
The US jumped from the bottom of the composite scorecard to second, due to a sharp improvement in earnings and economic momentum. Further, the US has the second loosest monetary conditions in spite of a stronger dollar. However, it is the most expensive region on our valuation scorecard (0.9 and 0.6 standard deviations expensive on 12m fwd P/E and P/B respectively) and it has the lowest operational leverage of all regions.
Japan has been the biggest loser over the last month, dropping from the top to third place on our scorecard. Monetary conditions have tightened (owing to recent Yen strength) and for the first time since January, it is no longer in the top 2 regions on the basis of economic momentum. However earnings revisions remain the best of all regions.
Continental Europe is middling on our composite scorecard (the US, Japan and Europe are very close together) as European earnings revisions have continued to deteriorate. However, earnings momentum has already fallen to a level at which it usually troughs and Europe continues to rank in the middle of our macro momentum scorecard for the second month in a row, having been last just a couple of months ago. European valuations look mixed with Europe being 0.6 standard deviation cheap on P/B.
GEM continues to rank bottom of our composite scorecard. Monetary conditions are the second tightest of any region and macro momentum is the worst (the only region with PMIs below 50 and negative macro surprises). The only two positives are valuation and positioning with GEM being the only region where our indicators show positioning to be abnormally cautious.
One of the most interesting observations this month was the fact that Europe has had by far the worst earnings revisions and Japan by far the best, but this seems to have been irrelevant for performance.
Click here to read full report [asset_library_tag 6938,Credit Suisse Global Equity Strategy]