Markets are called to open lower this morning. This is after:
- China’s manufacturing industry weakened for a fifth straight month, according to a preliminary measure for March released today, deepening concern the nation will miss its 7.5% growth target this year.
- Western sanctions are pushing Russia toward recession and the pain could intensify if US and European leaders turn the screw over tensions in Ukraine.
We believe that 2014 will be characterised by the move towards financial markets standing on their own feet, as the global policy support that has provided abundant liquidity to markets starts to be withdrawn. This will mark an important change in the drivers of investment returns:
- Instead of liquidity, corporate earnings will move into the spotlight and drive equity performance.
- The gap between equity and fixed income valuations will continue to normalise as bond yields rise.
- Corporate credit is likely to outperform sovereign debt but we do not anticipate a ‘great rotation’ out of bonds.
- Emerging markets are a ‘wildcard’ and likely to remain volatile.
Stock to watch: Valeo (Price €100.90, Calamatta Cuschieri’s Price Target increased to €112)
We have upgraded the price target on:
- Strong sales increase momentum. We believe Valeo will be able to maintain positive sales increase momentum. Our sales forecast is still at the low end of Bloomberg consensus.
- The Group’s debt has been reduced significantly.
- We have increased the PE multiple from 18x to 20x Earnings. A 20x earnings multiple implies that we expect EPS to increase by 10% on average in the next 5 Years. By comparison the market consensus expects an EPS increase of 15% in the next 3 years.
To get a full copy of our report, log into webtrader or contact our offices on 25688688.
Companies in Europe reporting today:
• Aberdeen Asset (ADN LN) 8am, IMS
• Talanx (TLX GY) TBA
Good day and happy trading!
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