Tuesday, March 12, 2013

Look at the U.S. and Europe for growth

IN terms of regional preferences we have less positive about equities England than in the U.S. and continental European equities for some time.

We feel that the announcement of an ambitious fiscal consolidation will hamper economic growth and provide a headwind for the UK domestic-oriented companies.

That said, there are arguments in favor of UK equities, and we really like them to other local assets, mainly gilts. Major UK companies get most of their revenue from overseas. Geographical distribution of income is very difficult to measure. This is not a formal requirement to report and publish freely to attract corporate number limit their preferred area.

As a rough proxy though, it is interesting to look at the FTSE 100 index, AOS 10 largest companies. Together they account for almost half of the index, the market capitalization of AOS. Energy, material and financial companies tend to make sales around the world prices are determined and highly dependent on the economic cycle that sees the world. This is especially true in Asia where the likes of HSBC (11% of 2010 total net interest of Hong Kong only), Standard Chartered (20% of 2010 operating profit from India), and BHP Billiton (28% 2011 revenue from China ) involved. In addition, European, AOS is important not to be overlooked, for example, the area responsible for 60% of Vodafone, AOS 2010 sales.

The full size of the combined UK consumer sector is important, especially in comparison to global developed market equities. Given household names such as Kingfisher, Marks & Spencer, Next, ITV, Tesco, J Sainsbury and Wm Morrison, the UK consumer healthcare clearly still important.

UK households buffeted in recent times but there are early signs that the economy may be starting to ease. UK Data surprise index, AI learned to trade measures, employment, retail sales, house prices, manufacturing and services, AI trending upwards lately. In addition, inflation will continue to fall for several months now will get a modest boost in disposable income, albeit from a low base.

England, AOS overweight exposure to the energy sector is also significant. The presence of global giants BP and Royal Dutch Shell is the UK market, the largest sector AOS. Oil prices are likely to remain high in the medium term and should prove positive for the sector.

Although there are several columns constructive to make the case for UK equities, it is still not developed AOS our favorite markets. We prefer the United States and Europe (ex UK) on the basis of solid earnings growth seen in the former and the latter excessive punishment for the debt crisis. However, the UK market is relatively cheap in terms of price-to-earnings ratio. Also offers a dividend yield higher than the global developed market equities.

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