05.05.2021
Global equity indices & inflation
The recent round of global PMI data has sharpened fears about supply bottlenecks & upward pressure on inflation.
On current patterns, nearly every equity index globally has positive sensitivity to inflation expectations; i.e. they remain a tailwind rather than a headwind to equity performance. When sensitivity flips to negative we will see evidence of a significant regime shift - that markets are worrying about margin compression or an earlier policy response from Central Banks.
In pure sensitivity terms it is European markets - notably Austria EWO, Greece, Norway ENOR, Italy & Spain - that are the biggest beneficiaries from rising inflation expectations.
In broader macro valuation terms there is a distinct East - West split. US & European models are consistently rich to macro model value. Those that are cheap to model include both the Nikkei & TOPIX in Japan, Indonesia EIDO, South Africa EZA, South Korea EWY & the broader EM index EEM
In broader macro valuation terms there is a distinct East - West split. US & European models are consistently rich to macro model value. Those that are cheap to model include both the Nikkei & TOPIX in Japan, Indonesia EIDO, South Africa EZA, South Korea EWY & the broader EM index EEM
