UBS most preferred European Utilities are E.on /EDF/ Enel/ Engie / Fortum / Gas Natural.
+ & – to invest in the sector :
+ Sector’s return to positive earnings growth (5-7%) + favorable earnings revision + Earnings visibility.
+ Relative valuation vs others sectors.
+ High Dividends in Low Bond Yields environment.
+ Global Energy transition should be beneficial.
– Politics & new regulations .
– Risk = Long rates evolution .
+ « Defensivity « of sector in streched market environment.
Enel , Engie and E.on are the cheapest based on P/E metric.
Engie on P/BV point of view.
Gas Natural based on Dividend.
Link to slides below text.
FT has strong view on european equities…
- Private consumption led recovery (Slide 10) i.e more potential on the export side if EUR weakens.
From big budget deficit in peripheral countries to surplus since 2010 for the most (Except Spain) (Slide 12).
European growth better relative to US in 2016. (Slide 17).
SEK = Opportunity relative to EURO (Slide 18) : Risksbank to hike rates sooner tha later EUR-SEK spread to go down.
Earnings in Europe at crisis low (2010) !!! Not the case for US .. (Slide 20). Momentum improving for EM earnings.
European recovery well established : Unemployment at lows / IFO / Manufacturing PMI / GDP (Slide 21)
Support for EURO improving vs 2016 amongst Member states (Slide 22)
Huge potential recovery for european corporate earnings still 46% below pre-crisis peak….(Slide 23)
… & at all time lows as % of MSCI World. (Slide 24)
European Corporates sales recovery … earnings not yet … Margins will improve once we have more inflation. (Slide 25)
P/B at 1.8 in the lower range for last 20 years. (Slide 27)
Normalised PE at 18.50 cheaper vs US / DM / 30Y average of 21.50. (Slide 28)
Headwinds & Tailwinds for next 12m. (Slide 33)
Templeton EUROLAND Equities fund is already in our « Best in class « Funds list »
… and on EM equities.
- GDP/Capita : Huge room for growth !!! (Slide 36)
EM GDP( and trade) in % vs World more than doubled in 20 years .. just the beginning.. (Slide 37)
EM demography = ++++ (Slide 38)
Internet usage : Amongst the top 10 countries, 5 are EM . (Slide 39)
EM Ccies Index … 22% lower compared to 2002 and 24% lower than 2009 at bottom in 2016 // Today still nearly 40% lower to 2011 top. (Slide 44)
EM equities trading at discount vs DM .. PE 12.40 vs 16.50 , PB 1.8 vs 2.3 with higher earnings growth 14.4% vs 10.40% and higher margins. (Slide 45)
EM increasing Tech domination : (Slides 49 and follow.)
EM fundamentals sounder than DM : Banking system , Public & corporate debt , cap to asset ratio. (Slide 54 and follow)
EM key issues : Fed / US stimulus policy/ USD / Korea / China adjustments .
Templeton Emerging Markets Equities fund : Last 2 years performance was very good mainly since Manager change back in 2014 .
US markets – Break of SP500 2350 targets 2280 -2300 / Worst case 2240 // Sharp move but short in time 1 or 2 weeks.
Oils stocks basing and turning bullish.
Buy US Financials after pullback.
US yields will pull back short term : Short term Top around 2.60% 10y in place // See 3% in H2 2017 .
Major top in USD in place / UBS sees DXY at 92 in 2018 from 100 now.
Bearish USD so bullish Commodities, Gold, EM, Oil .
Big move in Gold within 12 months minimun target 1700 USd after USD 1375 break.
European, stocks : Buy Dax on pullback at around 11500 and Eurostoxx50 3200 as max retracement so buying opportunity in 3200 -3300 range.
ETF Daily Dax Long 2X was sold on Dec.15th at the EUR 259 limit (roughly equivalent to 11400 Dax level ) . It was bought on Nov 8th at EUR 218,75 so we book a 18%+ profit .
The UBS SP500 Put 2354 was bought at EUR 0,83 (Equivalent to SP500 at 2267) on Dec.14th.
Virt. Portfolio as of Dec.16th 22:00 CET
In the aftermath of Italian referendum and ECB decision to extend QE until end of 2017, Eurostoxx50 has exceeded a cluster of resistances in the 3100-3150 area and made a new high for 2016.
The upside is open as long as profit taking in the next days does not drive the index back below 3100 on a closing basis and so cause a fake break up.
Many analysts do consider european stocks as not overly expensive and that they will profit from a weakening EURO . One has also to keep in mind that current levels of Eurostoxx50 is 17% off its April 2015 high & respectively 30% / 41% off 2007 / 2000 Highs ; Right , the european financial and economic landscape was much different at that time !!
Long term Eurostoxx50 chart : In 2000 when the european index was at the top , EUR/USD was quoting around 0,90, at the bottom in 2009 , in the 1,30 -1,50 range … Where the EUR goes , …