VTAR Summary for Our Calls
Megatrends VTAR & Commentary
Equity valuations are slightly expensive but a robust earnings outlook, strong government action and a renewed sense of urgency from COP26 will fuel further investments in sustainability. Investors need to be mindful that positive changes require increased regulation and corporate reporting transparency, which could bring about short-term uncertainty.
Global Healthcare valuations are at a discount compared to broader global equities, while earnings growth prospects remain strong. Increased fund inflows and continued investments by big technology firms and banks will mitigate the dampening effect of rising bond yields.
Onshore equity valuations are slightly higher than offshore equities but are overall more attractive as it faces less regulatory headwinds. Markets still expect Beijing to maintain a target GDP growth rate of 5% in 2022. Softer regulations, as well as fiscal and monetary stimulus will support growth.
Digitalisation and innovation are the key pillars in the new economy and a key focus of US-China tensions. Both countries are expected to invest heavily in these strategic sectors. However, valuations remain very high and the introduction of a global minimum tax regime will lead to revised earnings estimates.
The US economy led the world’s reopening efforts but is expected to slow down as other regions catch up. Corporate earnings growth should remain strong, but high equity valuations may cap gains. Be selective by increasing exposure to sectors that will benefit from global, rather than domestic, reopening.
High Conviction Calls VTAR & Commentary
Initially a recovery laggard with cheaper valuations compared to US peers, European equities now present a good catch-up opportunity. Inflation and credit growth have turned positive, indicating recovering economic growth. Be wary of supply chain disruptions and a premature tightening of fiscal and monetary policy which could dampen Europe’s growth outlook.
With the Fed’s tightening trajectory in 2022 and robust economic activity, the sector will benefit from rising interest rates, greater loan demand and higher trading and fee income. Valuations remain reasonable relative to the broader S&P 500 Index. But rising competition from alternative payment platforms and cryptocurrencies could pressure traditional banking revenues.
Valuations have been higher than the historical average but have come down after China’s regulatory tightening. Improving vaccination rates across the region will facilitate reopening efforts. Supply chain disruptions are still affecting the manufacturing and logistics industries, but could ease as countries reopen.
Companies with superior business models will thrive in the post-pandemic recovery in 2022 and higher earnings expectations will make up for stretched valuations. Unexpected spikes in bond yields could trigger a temporary sell-off. However, these companies’ superior quality characteristics, as well as the positive economic backdrop, will keep them on track for long-run returns.
Supply chain disruptions have prevented US consumer discretionary companies from realising the earnings potential from strong consumer demand. This has resulted in valuations appearing expensive. However, these companies have managed to pass on cost increases to consumers and supply constraints should ease by mid-2022.