Further to last week’s note, global growth expectations are continuing to plummet at October 2008 rates. Like in 2008, energy prices have dropped sharply, albeit only from $55/bbl instead of $110. As such, the economic relief from the 2008 deflation of commodity prices does not register much of a positive impact this time around, in fact quite the opposite. The extraordinary QE programme announced last week is also unlikely to see global growth expectations bottom out, at least not until the full extent of the covid-19 crisis is known, the same way that it did by end October 2008 after the financial crisis went global and the extent of the bail-outs required became clearer. Markets did come back from a -26% loss (since 10 February) on 12 March to -22% on 13 March (vs. -30% on the equivalent 2008 date, 9 October), but averting a liquidity crisis is one thing, seeing the daily number of new covid-19 cases outside of China and South Korea stop rising (i.e. prospect of a return to normalcy) is another.
Under the circumstances, the stocks surfaced by Butterwire as offering the best prospects of material future out/under-performance have dramatically evolved over the past few weeks and will certainly do so again when global growth expectations bottom out (and a supply crunch meets a wall of money). For now, we have taken this opportunity to create a rapid digest of Butterwire’s latest insights from its Stock Explorer and from its daily analysis of the fast-evolving fundamentals of 6,000 primary equities. The 8 summary tables below are organised as follows:
- North American Large Caps
- North American Mid-Caps
- European Large Caps
- European Mid-Caps
- Japan and Australia-New Zealand Large and Mid-Caps
- Emerging Markets Large Caps
- Emerging Markets Mid-Caps
- Global Small-Caps
These are not intended to be exhaustive, but all the stocks listed are deemed “interesting”, either for their above-average potential to materially outperform (see “interesting longs” columns) or materially underperform (see “interesting shorts” column) going forward. The “interesting longs” column is split according to stocks’ recession-resilience scores (higher is usually better in all but an economic recovery environment), and the high-recession resilience stocks are further split to highlight the stocks with both the highest fundamental score (top quintile) and an absence of “check thesis!” alert (this alert typically affects 2-3% of covered stocks; it reflects a situation where the engine suspects it is missing an important driver of a stock’s poor current performance).
Regionally, Europe and specifically the Eurozone, stands out as currently offering the poorest prospects given the fragility of its banks, low growth, high deficits, and possible untenability of its monetary union. Conversely, Emerging Markets and specifically Asian stocks may offer brighter return prospects, while in Japan a typically rising currency during a downturn will doubly favour domestically focused producers over exporters. Notwithstanding the relative appeal of the US market during downturns, companies that have over-indulged in short vol strategies (e.g. raising debt to buy-back shares) or whose survival depend on a short vol environment (e.g. shale oil producers and their lenders) should continue to weigh on market returns.
Japan and Australia