Despite lower GDP growth, European earnings may accelerate in 2019

Brexit uncertainty has captured the headlines, but we are constructive on quality growth holdings

Time to read: 3 min

For months, Europe has grappled with geopolitical uncertainty in the form of ongoing Brexit negotiations (which face a looming March 2019 deadline) and Italy’s populist coalition government. In this environment, UK companies have appeared less likely to invest — which could lead to lower European growth levels next year.

So what do Brexit doubts mean for our team’s Earnings, Quality, Valuation (EQV) outlook for the UK and eurozone? Let’s begin by dispelling three myths about the area.

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Shining the EQV spotlight on China and Japan

Third quarter review uncovers significant hurdles for equities

Time to read: 4 min

During the third quarter, the People’s Bank of China (PBOC) remained in active easing mode and Japan’s Nikkei 225 Index reached a 27-year high. Supportive monetary policy and strong momentum can often be positive indicators for markets. However, in our analysis of recent events and likely catalysts for future direction, the Invesco International and Global Growth team continues to seek opportunities but believes both markets face obstacles that could impact future performance.

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After the sell-off, what will earnings season tell us?

Higher interest rates represent a salient threat to valuations

Time to read: 2 min

The global market backdrop remains challenged with geopolitics, trade, Brexit, rising oil prices and central bank balance sheet contraction all introducing incremental uncertainty to the calculus around earnings growth, interest rates and valuations. For the time being, the equity market appears very much in de-risking mode, with a focus on earnings delivery and outlook statements as the third quarter earnings calendar gathers pace. Here are the issues that the Invesco International and Global Growth team is watching in the fourth quarter and beyond.

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Valuations remain a hurdle in Japan

However, we’ve uncovered two recent opportunities that meet our criteria

Time to read: 2 min

Japan has been a market where investors have been buying growth at all costs, and the opportunity set remains limited from a valuation perspective, in our view. However, the Invesco International and Global Growth team has been able to identify select opportunities so far this year. Invesco International Growth Fund remains underweight Japan, but we added to our exposure in the second quarter in companies that meet our Earnings, Quality and Valuation (EQV) criteria.

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Heightened volatility rattles global markets, but the US economy shows no signs of weakening

So how did earnings expectations respond to the second-quarter pickup in volatility?

Time to read: 3 min

For international markets, the second quarter of 2018 was marked by continued volatility. Quantitative tightening, balance sheet normalization, trade war concerns and political uncertainty all played a critical role in challenging the synchronized global growth we watched unfold last year. So how did earnings expectations respond over the past three months — and what did the pickup in volatility mean for our Earnings, Quality and Valuation (EQV) approach?

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