Global growth provides upside for equity investors — if they know where to look.
“The global economic expansion is finally filtering through to the bottom lines of companies in Japan, Europe and [emerging markets],” says Richard Turnill, BlackRock’s global chief investment strategist, in a weekly report.
In fact, “the earnings pickup unfolded in Europe and Japan this year despite the drag of stronger currencies on exporters,” he says.
For example, Japanese companies increased earnings by 17% in the last quarter — “the best year-on-year increase of any major developed market,” says Turnill.
This year, both Japan and Europe are expected to see earnings growth outpace that of the U.S.
Turnill expects the momentum to carry over into 2018.
“Our view of a modestly higher U.S. dollar further supports the case for non-U.S. equities, as export-driven earnings get a further boost from a healthy global trade backdrop.”
But 2018 won’t be another year of double-digit growth. As profit growth peaks, he expects to see greater dispersion in stock returns.
“That means investors will need to focus on regions and sectors where profit momentum should have staying power,” like tech and cyclicals, he says.
Further: “Financials have made up about 20% of global earnings growth this year — a share we see rising in 2018 as bond yields rise.”
Read the full report.