This year has the potential to be a great one economically, with plenty Capital, fairer approaches from banks in Asia, Europe and the United Kingdom, and strategists believing that the equity risk premium may be somewhat exaggerated. This is not without risk, however, as political tension has caused a slow in China’s growth, and disruptive technology as well as Chinese overinvestment threaten business structures.
The Bank’s Global Market strategists claim that there are three investment styles which emerged as most successful, offering the best returns, towards the end of 2016. For those looking to do well in both bull or bear markets (that being when an economy is doing well and when an economy is doing poorly, respectively), high-quality growth stocks are recommended. Those interested in value investing should, according to Bank’s, invest in the cheaper, high-beta stocks. Income investors are advised to invest in what Credit Suisse dubs ‘dividend aristocrats’, the dividend-payers that have consistently seen great returns for extended periods of time.
America and Europe saw, in the case of the former, a 1 percent underperformance in the market, and in the latter, a 1 percent outperformance. Both Europe and America did, however, outperform in the market with regard to quality growth stocks. These show the lowest debt-to-equity ratios and bring in the highest annual trailing return. It is a reliable investment that has shown to consistently bring in returns.
The end of 2016 saw a high return on quality growth stocks, a trend common to late-cycle bull markets according to Credit Suisse. This is based on trends seen in America in the 1990s and Japan in the 1980s, but it appears that our growth stock valuations did not perform as well as expected. US and European growth stocks are underperforming in terms of their 12 month trailing price-to-value returns. This sees stocks trading at well under their value. In the midst of a falling global GDPgrowth, businesses that are growing steadily will more likely see new investments. These businesses are attractive at a time when disruptive technologies and Chinese overinvestment put pressure on pricing, and higher salaries in America pressurise the profit margin.
It has been predicted that the cost of equity will decline in Europe as well as America, which will lead to growth stocks outperforming and long-duration assets to rerate. With regard to high-quality growth stocks, Global Markets team suggests looking into mobile internet plays, which has seen significant growth lately and is thought to have the potential to expand.
Those seeking more affordable investments, they can look to high-beta stocks. These stocks are cheaper and see a steady return, especially those deemed ‘dividend aristocrats’. The European high-beta stocks are slightly cheaper than the U.S., but both see favourable returns. It is well-advised to invest in dividend aristocrats as they have performed well consistently for at least ten years and can guarantee growth.
European dividend aristocrats are more preferable to American ones for The Bank’s Global Market as European dividend aristocrats are more attractive and will not see an interest rate increase like the U.S. The European dividends are likely to consistently outperform and experts say it is a reliable investment.
