Company bottom lines, as opposed to policy decisions, will push global equity markets up in 2013, according to Vincent Delisle, investment strategist, portfolio strategy group with Scotia Capital.
“Bottom line earnings is really what has been driving market leadership,” said Delisle while speaking at the Scotiabank 2013 – 2014 Economic and Market Outlook Conference in Toronto on Wednesday, “and will continue to do so as we head into 2013.”
For example, the three best performing indices for 2012, he said, are the United States, Germany and Mexico. The strong performances of these indices can be attributed to high productivity levels in the U.S and Germany and an increase in P/E multiples in the Mexican market.
The increase in P/E earnings is of particularly importance because many companies throughout the world have kept money out of the market in fear of policy decisions, such as the fiscal cliff. As a result, said Delisle, company P/E multiples are at 11 to 12 times earnings, which is well below the historical average of 14 to 15 times earnings. This gap suggests there will be a slight uptick in P/E multiples, he said, which is good news for equity markets.
Closer to home, Canada can also expect to see a stronger equity market although it will not out pace the U.S. “We don’t expect leadership from Canada over the S&P 500 next year,” said Delisle, “but certainly performance that is much closer [to the U.S].” Delisle anticipates a rise in the TSX in 2013 for three reasons: a soft landing for China, a bottoming out of TSX performance as compared to the S&P 500 and a general feeling of forward momentum in the global economy.
In the first case, while China will not buy up Canadian commodities at the pace predicted by other investors and experts, said Delisle, it will continue to grow and will likely ease interest rates which is positive news for Canada. Secondly, last summer the TSX was down 26% compared to the S&P 500, he said. Today it is only down by about 9%, indicating Canadian equities are on the rise. Finally, global equity markets have improved markedly since June, said Delisle, and this momentum will continue to build and give indices a boost in the coming year.