FROM DREAM TO REALITY: SocGen's Awesome Presentation On The Risks And Debates Driving Markets Right Now

socgen presentation

Five risks, three big-picture themes, and six debates – those are the contents of the latest presentation by Société Générale strategists Paul Jackson and Alain Kayayan.

The presentation provides a tight, yet comprehensive snapshot of the conversation in markets right now. Stocks are expected to outperform other asset classes, and the general view is starting to coalesce around the idea that the big negative “tail risks” are receding.

However, investors need to take a realistic assessment of those risks – and if they can be mitigated, then the question becomes where to invest.

Jackson and Kayayan provide a few ideas.

Note: Thanks to Société Générale for allowing us to feature this presentation.

Below is what investors do versus what they want strategists to focus on

In summary, stocks may look cheap, but there are a lot of risks

Below is a breakdown of each subsector in the market and why each is rated as it is

Below is a sector map plotting valuation versus price momentum

Some of the best performing sectors over the past few months were underweighted by SocGen analysts

Earnings estimates on tech hardware stocks have risen while the stock price has lagged. Vice-versa for semiconductor stocks

Interest rates are still abnormally low

In recent years there has been a widening divergence between dividend yields and market return

European stocks look cheaper than those in the U.S.

Some of Europe's worst economies have stock markets with the cheapest valuations

Below are stock sectors ranked by valuation

Value investing may be making a comeback

Sectors to the left of the chart below must produce more growth than those on the right to justify current valuations

Implied dividend growth in metals and mining stocks seems too high

SocGen thinks these dividend growth assumptions are more realistic

World economic growth and policy is expected to converge in coming years

The old high-beta sectors are becoming the new low-beta sectors

However, there are risks

The US economy still isn't out of the woods

China looks to be turning around, but it's got a fragile banking system

And volatility is still incredibly low – not necessarily a great sign

Now, interest rates are expected to rise

The U.S. dollar should strengthen

China is undergoing structural deceleration

So: invest in the UK?

And what about the periphery: Italy, or Spain?

Banks have been on a hot streak – will it keep going?

There's more room to cut costs

Energy may be good – but maybe not

And pharma stocks get a downgrade

Next question: how big of a deal for Europe is the weakening Japanese yen?

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