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What do our maps have to say about international equities? Amundi’s methodology

These maps are decision-making tools. Their purpose is to compare the markets with one another in a sort of snapshot of the current situation. They highlight current issues and suggest some objective responses.

Interpretation

The equity markets are positioned along three axes. The horizontal axis expresses earnings momentum (earnings indices and “net up”); the vertical axis expresses price momentum (market indices and flows); and the circle sizes express valuations (P/E and P/BV). These three dimensions are measured in dollars and relative to the MSCI World. The colours refer to geographical regions (the US, Asia, EMU, Europe ex-EMU, and GEM), or to sector groups (financials, cyclicals, commodities, and defensives). As markets behave ahead of earnings, the natural rotation is clockwise.

Global map

The global map still places the United States in STAR but now on the border with the following region (DOUBT). Japan is taking over from the US. It is not very expensive and should continue to outperform. The euro zone is next in line, in a neutral position for the moment. Emerging markets are still a little further along in the process (REPAIR) but their valuation suggests that some risk is already priced in.

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European map

The European map highlights several profiles. The most “consumer-oriented” markets (Belgium, Denmark) are in STAR or at the border of STAR, whereas in the opposite quadrant (REPAIR) the markets most exposed to commodities may be found (Norway, UK). The map also shows that the countries under the greatest political risk (UK and Spain) are being squeezed the most. In contrast, France and Italy are at the edge of the STAR quadrant and thus offer opportunities. Germany and Sweden (cyclical markets) are under greater pressure (DOUBT) but not yet in selling territory.

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World sector map

The world sector map also shows the wide divergence between the theme of consumption (STAR sectors) and commodities (REPAIR sectors).

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STAR (upper right) : the markets are outperforming with reason, as earnings are also outperforming earnings elsewhere in the world. The larger the circle, the more the market has priced this in and the lower the potential.

DOUBT (lower right) : the markets are underperforming but earnings are still holding up. Is this temporary?

REPAIR (lower left) : the markets are underperforming with reason, as earnings are also underperforming. The smaller the circle, the more risk is priced in and the greater the potential. But watch out for value traps!

CHALLENGER (upper left) : the markets are outperforming but earnings are not yet keeping up. Is this a shift towards a new trend?

Global emerging market map

The global emerging market map is still highly concentrated in REPAIR. This suggests that if investors are reassured on China, the most oversold markets will react more sharply, i.e., markets heavily exposed to commodities and those with the shakiest fundamentals. However, those markets able to keep up, reverse trend and join the STARs will be those whose profits have turned up despite an appreciation in their currency. At this stage, our map is pointing towards a few markets in Eastern Europe (Hungary and Russia) and Asia (Philippines, Korea and India). These countries’ common feature is that they have current accounts that are either in positive territory or improving (India). As net oil importers, they are also benefiting from lower oil prices (except for Russia, of course). No country in Latin America, nor Turkey, nor South Africa is looking favourable at this stage.

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Eric MIJOT, Strategy and Economic Research at Amundi
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What do our maps have to say about international equities? Amundi’s methodology
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