Insights and Market Perspectives

Turning to Global Markets for Earnings Growth

Author: Portfolio Specialist Group

July 19, 2017

When it comes to growth stocks, many investors look to the U.S., and perhaps for good reason. Earnings potential continues to be high with hopes for policy reform, though diminished, amidst a bull market now into its eight year. With the S&P 500 returning over 20% annualized for the past five years (in Canadian dollar terms), investors may see little reason to look elsewhere.

Perhaps going unnoticed, however, is the fact that earnings growth in other markets has been even more impressive. The Stoxx 600 Index, which tracks the largest companies in developed European countries achieved earnings growth amounting to four times higher than the S&P 500 in the first quarter of 2017, at 20.2%.

In Japan, earnings growth spiked to 25% in the first quarter and this trend could continue into the second half of 2017. Valuations are still attractive, Japanese companies remain focused on ROE and potential weakening of the Yen, if markets shift to risk-on mode, should provide a tailwind to Japanese equities.

The prospects of further earnings growth in global markets is impressive and has resulted in the Asset Allocation Committee (AAC) shifting exposure accordingly. In our most recent outlook, the AAC shifted to a more neutral stance overall (now 60% equities/40% fixed income), though has significantly reduced its U.S. exposure to an underweight position relative to the neutral benchmark, given the strong rise in U.S. equities and more limited appreciation going forward (relative to other select regions). While Europe is still an underweight position overall, the underweight has diminished, while Japan remains an overweight position, given the reasons mentioned above.


Commentaries contained herein are provided as a general source of information based on information available as of July 7, 2017 and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and the manager accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Investors are expected to obtain professional investment advice.


About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

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Written by

Portfolio Specialist Group

AGF Investments Inc.

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