* Global Earnings Revision Ratio is at long-term averages
The Global Earnings Revision Ratio remains near long-term averages as investors patiently wait for evidence of a global profit recovery to propel equity markets higher. Despite the Ratio moderating from 0.81 to 0.79, there are areas of particular
strength across the world, including Japan.
* Japan stands out
The Earnings Revisions Ratio is higher in Japan than any other region as earnings expectations continue to improve. Coupled with this, Japan has underperformed the world index year-to-date, is trading at a discount to the PE of the world, and
ROEs of Japan companies are rising. This is creating an attractive opportunity for investors. Elsewhere, the Ratio improved in Europe (0.57 to 0.70), but moderated in the USA (1.07 to 0.90), in Asia Pac ex-Japan (0.71 to 0.69) and in Emerging
Markets (0.75 to 0.71). Strong: Insurance,
* Strong: Insurance, Banks and Tech Hardware
The three-month Ratio of upgrades-to-downgrades is highest for Insurance (1.11), Banks (1.09), Utilities (1.08), and Tech Hardware (1.02). This continued earnings strength is one of the reasons the Global Quant Strategy team remains overweight
Insurance, Banks and Tech Hardware.
*Weak: Consumer Staples, Materials, Energy
The Global Consumer Staples sector continues to experience the lowest Earnings Revision Ratio across global sectors. Our models are underweight Consumer Staples as earnings expectations fall and valuations remain stretched. The
Earnings Revision Ratio also continues to fall meaningfully for Materials and Energy. It seems likely these late cyclicals could remain relatively weak until the global earnings recovery gathers speed.