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2017 has been a tough year

for Ebearnezer Scrooge


THE BULL JUST GOES
ON AND ON
AND…
(OR HOW TO CORRECTLY PREDICT 10 OF THE
LAST 1 MARKET CRASHES)

Albert Edwards
IS ICE AGE SECULAR DE-RATING OF EQUITIES V BONDS OVER?
BOND/EQUITY YIELD (CASHFLOW) RATIO

Source: Datastream 4
VALUATIONS DON’T MATTER APPARENTLY? FORWARD PE

Source: Datastream 5
SHILLER (P/E10) RATIOS : S&P 500 SECTOR‐MATCHED TO EAFE

Source: GMO 6
2017 SAW BUMPER CENTRAL BANK MONEY PRINTING

Source: Zero Hedge 7


INDIVIDUALS STOCK EXPOSURE IS EXTREME RELATIVE TO CASH
4 .5 0

4 .0 0

3 .5 0

3 .0 0

2 .5 0

2 .0 0

1 .5 0

1 .0 0
87 89 91 93 95 97 99 01 03 05 07 09 11 13 15

Source: Datastream, AAII 8


PROFESSIONAL ADVISORS ARE AS ALSO EXTREMELY BULLISH

Source: Twitter, Yardeni Research 9


THE DONALD IS ALL BULLED UP TOO!

Source: Twitter 10
US EQUITIES RALLIED THROUGH 1987, DESPITE BOND SELL-OFF
20 6

7
18
10y yield
(inverted, rhscale)
8

16

14 10

11
12

trailing PE 12

10

13

8 14
1984 1985 1986 1987

Source: Datastream
11
US ISM AND BRENT OIL PRICE (JAN 1985-OCT 1987)
62 35

60 oil price (brent, rhscale)


30

58

25

56

54 20

52

15

50

10
48

manufacturing ISM
46 5
1985 1986 1987

Source: Datastream
12
$ STABILIZED IN 1987 DUE TO HIGHER RATES & LOUVRE ACCORD
13 3 .6 0

$/DM (rhscale)
3 .4 0
12

3 .2 0

11

3 .0 0

10
2 .8 0

9
US 10y 2 .6 0

2 .4 0
8

2 .2 0

2 .0 0

Fed Funds
6
1 .8 0

5 1 .6 0
1985 1986 1987

Source: Datastream
13
IS THIS LIKE 1987? EQUITIES IGNORE RISING YIELDS - FOR NOW
3 .5 0 3 .5 0

3 .0 0 3 .0 0

2 .5 0
S&P dividend yield 2 .5 0

2 .0 0 2 .0 0

1 .5 0 1 .5 0

1 .0 0 1 .0 0

0 .5 0 0 .5 0

2y

0 0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: Datastream 14
THE MARKET HAS LITTLE BELIEF IN FED TIGHTENING PROMISES
3 .0 0 3 .0 0

2 .5 0 2 .5 0

10y
2 .0 0 2 .0 0

1 .5 0 1 .5 0

2y
1 .0 0 1 .0 0

0 .5 0 0 .5 0

Fed Funds
0 0
J F M A M J J A S O N D J F M A M J J A S O N D

Source: Datastream 15
IT LOOKED SO DIFFERENT IN 1994

Source: Datastream 16
US DOLLAR NOT BEING DRAGGED UP AS US 2Y YIELDS RISE

Source: Datastream
17
SPECULATORS ARE VERY SHORT THE DOLLAR NOW AGAINST €
THIS TIME LAST YEAR THEY WERE VERY LONG!
EUR/USD CFTC spec EUR, 000s
1.25 150

100
1.2
50
1.15
0

1.1 -50

-100
1.05
-150
1
-200

0.95 -250
01/15 07/15 01/16 07/16 01/17 07/17 01/18

Source: SG Forex, CFTC


18
THE FED’S TAPER TANTRUM COWARDLINESS = CONVERGENCE
US 1y in 10yrs 1y in 5yrs 1y in 2yrs 1y in 1yr 1yr swap Fed Funds

0
01/13 07/13 01/14 07/14 01/15 07/15 01/16 07/16 01/17 07/17 01/18

Source: Kit Juckes, SG Forex 19


DOVISH HIKES HAVE LOOSENED FINANCIAL CONDITIONS

Source: Datastream
20
THE MAIN REASON THE MARKET IS BELOW THE FED DOTS IS…

Source: Datastream 21
BUT IS US CORE CPI SET TO RISE?
US GDP AND CORE INFLATION
3.5 8

3.0 6

2.5 4

4 QTR %
2.0 2
12M%

1.5 0

1.0 -2
CORE CPI GDP* (RHS)
0.5 -4
* LEA DING BY 18M.
0.0 -6
1995 1998 2001 2004 2007 2010 2013 2016 2019
Source: Gerard Minack, Downunder Daily 22
NY FED SUGGESTS US CORE CPI COULD SURGE
CORE CPI AND NY FED'S UNDERYING INFLATION GAUGE
3.5 5
* FRBNY UNDERLYING INFLA TION GA UGE FULL
DA TA SET (UIGDDA TA INDEX). LEA DING BY 15M. 4.5
3.0 4
3.5
2.5 3
2.5
2.0
12M %

12M%
2
1.5
1.5
1
1.0 0.5
CORE CPI (LHS) 0
UNDERLYING
0.5 INFLATION -0.5
GAUGE* -1
0.0 -1.5
1995 1998 2001 2004 2007 2010 2013 2016 2019

Source: Gerard Minack, Downunder Daily 23


US WAGE INFLATION HAS DRIFTED DOWN!

Source: Datastream 24
LOTS OF LABOUR SLACK IN THE US?
65 employment rate 97

(employment/working age pop)


96
64

95
63

94

62

93

61

92

60 employment/labour force
91
(1-unempyment rate, rhscale)

59
90

58 89
88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

Source: Datastream 25
PRIME AGE EMPLOYMENT RATE STRONGER THAN TOTAL
67 83

66
prime age employment rate (25-54) 82

65 81

64 80

63 79

62 78

61 77

60 total employment rate 76

(employment / working age pop)


59 75

58 74

57 73
88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

Source: Datastream 26
US PHILLIPS CURVE IS NOT DEAD
PRIME AGE WAGE GROWTH AND CORE EMPLOYMENT RATE
6.0 83
* MEDIA N HOURLY EA RNING (MA TCHED SA MPLE OVER
PRIOR 12 MONTHS). PRIME-A GE ONLY (25-54). FULL TIME
5.5 PA Y ONLY, EXCLUDES SELF-EMPLOYED. † 25-54 YEA R OLD
82
EMPLOYED A S % OF 25-54 POPULA TION. LEA DING BY 6M.
5.0 81
PRIME AGE EMPLOYMENT

% OF POPULATION
4.5 RATE* (RHS) 80
12 M %

4.0 79

3.5 78
PRIME AGE MEDIAN
3.0 77
EARNINGS*
2.5 76

2.0 75

1.5 74
1996 1999 2002 2005 2008 2011 2014 2017 2020
Source: Gerard Minack, Downunder Daily
27
WHY AREN’T US BOND YIELDS RISING MORE QUICKLY?
100 1 .5 0
6m ch in US bond yield
(rhscale)
1 .0 0

50

0 .5 0

0
0

- 0 .5 0

-50
- 1 .0 0

- 1 .5 0

-100

US economic surpises
- 2 .0 0

-150 - 2 .5 0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: Datastream
28
THE MOST IMPORTANT CHART IN THE WORLD?

Source: Zero Hedge, 13d Research 29


US 10Y YIELD CAN RISE TO 3% AND STILL BE IN A BULL MARKET

Source: SG Technical Analysis, Bloomberg


30
…BACK TO THE WAGE CONUNDRUM….

Source: Datastream 31
JAPANESE WAGE INFLATION BUMPING ALONG AT ½% YOY

Source: Datastream 32
JAPANESE LABOUR MARKET MUCH TIGHTER THAN THE US

Source: Datastream 33
JAPAN: A BIG INCREASE IN FEMALE PARTICIPATION RATIO

34
JAPANESE HOUSEHOLD INCOME IS STRONG (YOY%)

Source: Datastream 35
JAPAN: CONSUMPTION WEAK V INCOME – UNLIKE THE US & UK!
4 4

3 3

2
consumer spending 2

1 1

0 0

-1 -1

-2 -2

-3 -3

-4 -4

employee compensation
-5 -5
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Source: Datastream 36
JAPANESE STOCKMARKET PROFITS SURGING

Source: Datastream 37
JAPANESE CORE CPI INFLATION RISING

Source: Datastream 38
JAPANESE IMPLIED INFLATION EXPECTATIONS BOTTOMING?

Source: Datastream 39
JAPANESE BEGINNING TO BELIEVE IN INFLATION AGAIN!
4 65

% seeing inflation
60
3 (rhscale)

55

50

1
45

40
0

35

-1

30

-2 headline CPI inflation


25

-3 20
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Source: Datastream 40
JAPANESE QE IS OFF THE SCALE. COULD THEY TAPER TOO?

% of GDP Fed ECB BoJ BoE


100

80

60

40

20

0
Sep-08 Sep-11 Sep-14 Sep-17

Source: Bloomberg 41
HAS QT ALREADY STARTED IN JAPAN?

Source: Zero Hedge, Wolfstreet.com 42


KEEP A CLOSE EYE ON YEN/US DOLLAR. STRONGER YEN?

Source: SG Technical Analysis, Bloomberg


43
CENTRAL BANK QE UNWIND – WHAT IMPACT?

Source: Zero Hedge, Deutsche Bank


44
UNWINDING QE IS GOING TO BE SO EASY…APPARENTLY!

“I have absolutely no doubt that


when the time comes to reduce
the size of the balance-sheet that
we’ll find that a whole lot easier
than we did when expanding it.”
Mervyn King BoE Governor, Feb 2012

45
EASY MONEY

Andrew Lapthorne
GLOBAL QUANTITATIVE STRATEGY
Consecutive monthly positive total returns

10
12
14

0
2
4
6
8
1969
1971
1972
1974
1975
1977
1978
1980
1981

Source: SG Cross Asset Research/Equity Quant, Factset


1983
1984
1986
1987
1989
1990
1992
1993
1995
14 months of consecutive total returns for MSCI World

1996
1998
1999
2001
2002
2004
2005
2007
2008
2010
2011
2013
2014
2017: A RECORD BREAKING YEAR FOR MSCI WORLD

2016
2017
47
WHO NEEDS HEDGE FUNDS!
MSCI World delivered a Sharpe Ratio of more than 4.0x!
6.0

5.0

4.0
Annual Sharpe ratio (x)

3.0

2.0

1.0

0.0

-1.0

-2.0

-3.0

-4.0
1980

1985

1990

1995
1970

1975

2000

2005

2010

2015
Source: SG Cross Asset Research/Equity Quant, Factset

48
VOLATILITY FELL, PARTICULARLY IN EQUITY
Realised Equity, Bond and FX annualised realised volatility

45
Currency (USD, Euro, Yen, Sterling)
40
Bonds ( Treasuries, Bunds, JGBs, Gilts)
35 Equity (US, Japan, Eurozone, UK)
Realised volatility (%)

30 Average

25

20

15

10

0
Dec-02

Dec-03

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-16
Dec-00

Dec-01

Dec-04

Dec-15

Dec-17
Source: SG Cross Asset Research/Equity Quant, Factset

49
NATURAL LANGUAGE PROCESSING BECAME POPULAR

“Did someone say BLOCKCHAIN?”

“Online PLC” adds


Blockchain to its company
name to become “Online
BlockChain PLC”

Source: SG Cross Asset Research/Equity Quant, Factset

50
Median EV/EBITDA ratios (x)

10
11
12
13
14

5
6
7
8
9
Dec-95

Dec-96

Dec-97

Dec-98

Dec-99

Dec-00

Source: SG Cross Asset Research/Equity Quant, Factset, MSCI


Dec-01

Dec-02

Dec-03

Dec-04
PEAK EQUITY VALUATIONS

Dec-05

Dec-06
Median EV/EBITDA ratios Globally, US and Europe

Dec-07

Dec-08

Dec-09
US

Dec-10
Global
Europe

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17
51
REGIONAL RETURN ON ASSETS ARE CONVERGING
Median company return on assets by region (%)

7.00

6.00
Median return on assets (%)

5.00

4.00

3.00

2.00

US Europe
1.00
Japan
0.00
Dec-96

Dec-97

Dec-99

Dec-01

Dec-03

Dec-05

Dec-06

Dec-08

Dec-10

Dec-12

Dec-13

Dec-15

Dec-17
Dec-95

Dec-98

Dec-00

Dec-02

Dec-04

Dec-07

Dec-09

Dec-11

Dec-14

Dec-16
Source: SG Cross Asset Research/Equity Quant, Factset

52
3 year relative maximum drawdown (%)

-18
-16
-14
-12
-10
-8
-6
-4
-2
0
Dec-92
Dec-93
Dec-94
Dec-95
Dec-96
Dec-97
Dec-98

Source: SG Cross Asset Research/Equity Quant, FactSet, IBES


Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
PEAK PAIN FOR US VALUE INVESTORS

Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Sector relative FCF yield - 3 year maximum drawdown versus Benchmark

Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
53
GLOBALLY, OUR (SGVB) VALUE INDEX HAD A PRETTY GOOD YEAR

130
MSCI World Enhanced Value
125 MSCI World
SG Global Value Beta Index (SGVB)
120
Total returns (%)

115

110

105

100

Oct-17

Dec-17
Dec-16

Sep-17
Jul-17
Apr-17
Feb-17

Mar-17
Jan-17

Jun-17
May-17

Aug-17

Nov-17
Source: SG Cross Asset Research/Equity Quant, FTSE, I/B/E/S, FactSet .

54
AND IN THE LONG RUN

Source: SG Cross Asset Research/Equity Quant, FTSE, I/B/E/S, FactSet .

55
VALUE DOESN’T WORK AMONGST THE LARGEST CAP

VALUE PERFORMANCE PER SIZE SEGMENT (DM, LONG/SHORT,1990-2017)


12.0

10.0
Annualized Return(%)

8.0

6.0

4.0

2.0

0.0
Smallest Small Mid Large Largest

Source: SG Cross Asset Research/Equity Quant, FactSet, IBES

56
JAPAN AND FINANCIALS DOMINATE THE CHEAP UNIVERSE

Source: SG Cross Asset Research/Equity Quant, FTSE, I/B/E/S, FactSet .

57
US CORPORATES ARE STILL OUTSPENDING CASH FLOW...

2,000,000
Gross cashflow
1,800,000

1,600,000
Capex + Investment + Dividends
1,400,000

1,200,000 Capex + Investment + Dividends +


Buybacks
1,000,000

800,000

600,000

400,000

200,000

0
Dec-95

Dec-97

Dec-99

Dec-00

Dec-02

Dec-04

Dec-05

Dec-07

Dec-09

Dec-10

Dec-12

Dec-14

Dec-15
Dec-96

Dec-98

Dec-01

Dec-03

Dec-06

Dec-08

Dec-11

Dec-13

Dec-16
Source: SG Cross Asset Research/Equity Quant, Factset

58
US CASH FLOW GROWTH IS NOT AS STRONG AS YOU THINK

Source: SG Cross Asset Research/Equity Quant, Factset

59
-200000
-100000
100000
200000
400000
500000

300000

0
Dec-90
Dec-91
Dec-92
Dec-93
Dec-94
Dec-95

Source: SG Cross Asset Research/Equity Quant, Factset


Dec-96
Dec-97
Dec-98
Net Buybacks

Dec-99
Change in Debt

Dec-00
Dec-01
Dec-02
BUYBACKS ARE FINALLY DECLINING

Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
60
BUYBACKS ARE A SIGN OF WEAKNESS NOT STRENGTH
Correlation between stocks with the highest buyback yields versus Value and Quality stocks

1.0
Rolling annual (daily) correlation

0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
Value stocks
-0.6
High Quality stocks
-0.8
-1.0
Aug-99

Aug-01
Aug-02
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
Aug-09

Aug-12

Aug-15
Aug-95
Aug-96
Aug-97
Aug-98

Aug-00

Aug-10
Aug-11

Aug-13
Aug-14

Aug-16
Aug-17
Source: SG Cross Asset Research/Equity Quant, Factset

61
Net Debt to total assets (%)

11
13
15
17
19
21
23
25

5
7
9
Jun-98
Dec-98
Jun-99
Dec-99
Jun-00
Dec-00
Jun-01
Dec-01
Jun-02

Source: SG Cross Asset Research/Equity Quant, Factset


Dec-02
Jun-03
Dec-03
Jun-04
Dec-04
Jun-05
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Debt % Equity

Jun-08
Dec-08
Net Debt % Assets

Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
MEDIAN S&P 1500 EX FINANCIALS LEVERAGE RATIOS

Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
30
35
40
45
50
55
60
65

Debt to Equity (%)


62
NO WONDER THE IMF IS FINALLY CONCERNED ABOUT LEVERAGE!
Interest cover by size segment

18

16 Biggest 10%

14 Bottom 50%
EBIT interest cover (x)

12
Average
10

0
Dec-98

Dec-99

Dec-03

Dec-04

Dec-05

Dec-08

Dec-09

Dec-10

Dec-14

Dec-15

Dec-16
Dec-00

Dec-01

Dec-02

Dec-06

Dec-07

Dec-11

Dec-12

Dec-13
Source: SG Cross Asset Research/Equity Quant, Factset

63
MERTON DISTANCE TO DEFAULT – A MARK TO MARKET CREDIT MODEL

given a level of volatility


Possible future equity value
Equity

Debt Debt

Source: SG Quantitative Research

64
Realised 60 days volatility (%)

100

10
20
30
40
50
60
70
80
90
Aug-00
Feb-01
Aug-01
Feb-02
Aug-02
Feb-03
Aug-03
Feb-04
Aug-04

Source: SG Cross Asset Research/Equity Quant, Factset


Feb-05
Aug-05
Feb-06
Aug-06
High yield Credit Spreads

Feb-07
Aug-07
Average 60 day stock volatility

Feb-08
Aug-08
Feb-09
Aug-09
Feb-10
Aug-10
Feb-11
Aug-11
Feb-12
Aug-12
Feb-13
Aug-13
Feb-14
Aug-14
Feb-15
Aug-15
Feb-16
CREDIT RISK AND EQUITY VOLATILITY IS THE SAME THING

Aug-16
Feb-17
Aug-17
0
2
6
4
8
10
12
14
16
18
20
22

High Yield Credit Spreads (%)


65
BALANCE SHEETS WERE A KEY PERFORMANCE DRIVER LAST YEAR
Top vs Bottom 20% US stocks based on Merton Distance to Default

Source: SG Cross Asset Research/Equity Quant, Factset

66
THERE IS A GOOD REASON WHY MANY ARE SHORT RUSSELL 2000!
Net Debt versus EBITDA for the Russell 2000

500

450

400

350
Net Debt EBITDA
300
US$ Bln

250

200

150

100

50

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16
Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Source: SG Cross Asset Research/Equity Quant, Factset

67
WE'RE WATCHING THE RED LINE CLOSELY!
Balance sheet performance in the Russell 2000

Source: SG Cross Asset Research/Equity Quant, Factset

68
Profit share as % of AC MSCI World

-10
10
20
30
40
50
60

0
Dec-00
Jul-01
Feb-02
Sep-02
Apr-03
Nov-03
Jun-04
Jan-05

Source: SG Cross Asset Research/Equity Quant, FactSet, IBES


Aug-05
Mar-06
Oct-06
USA

May-07
Dec-07
Jul-08
Feb-09
Sep-09
Europe

Apr-10
Nov-10
Jun-11
Jan-12
Japan

Aug-12
Mar-13
Oct-13
May-14
Dec-14
Jul-15
Emerging

Feb-16
THE EUROPEAN QUOTED SECTOR IS LOSING GLOBAL RELEVANCE

Sep-16
Apr-17
Nov-17
69
JAPAN NOW GENERATES THE EQUIVALENT OF 50% OF EUROPEAN PROFITS
(MSCI Japan total 12m forward and reported earnings as % of MSCI Europe in USD)

60

50 12m forward earnings

40
Reported Earnings
30
% of Europe

20

10

-10

-20
Dec-86

Dec-88

Dec-90

Dec-92

Dec-94
Dec-95
Dec-96
Dec-97

Dec-99

Dec-01

Dec-03

Dec-05

Dec-07
Dec-08

Dec-10

Dec-12

Dec-14

Dec-16
Dec-85

Dec-87

Dec-89

Dec-91

Dec-93

Dec-98

Dec-00

Dec-02

Dec-04

Dec-06

Dec-09

Dec-11

Dec-13

Dec-15
Source: SG Cross Asset Research/Equity Quant, FactSet, IBES

70
Japan – seriously!
FUNDAMENTALLY JAPAN HAS BEEN OKAY – VALUATION WAS THE ISSUE

Source: SG Cross Asset Research/Equity Quant, FTSE, I/B/E/S, FactSet .

72
THE LONG ROAD TO NORMALISATION – 12M FORWARD PE BY REGION

Source: SG Cross Asset Research/Equity Quant, FTSE, I/B/E/S, FactSet .

73
MEDIAN JAPAN DIVIDEND YIELD IS SIMILAR TO THE US
Median company dividend yield by region
5.5
5.0
4.5
Japan
4.0 Europe
3.5 US
Median Dividend Yield (%)

3.0
2.5
2.0
1.5
1.0
0.5
0.0
Dec-95

Dec-96

Dec-97

Dec-99

Dec-00

Dec-01

Dec-04

Dec-05

Dec-08

Dec-09

Dec-12

Dec-13

Dec-16
Dec-98

Dec-02

Dec-03

Dec-06

Dec-07

Dec-10

Dec-11

Dec-14

Dec-15
Source: SG Cross Asset Research/Equity Quant, FTSE, I/B/E/S, FactSet
Note: Past performance is not indicative of future performance. Portfolio presented assumes no transaction costs. For additional details on portfolio performance please contact us.

74
JAPAN HAS THE LOWEST PAYOUT RATIO
Dividend payout ratios by region

150
140
130
120
110
Payout ratio (%)

100
90
80
70
60
50
40
30
20
10
0
SWEDEN

NORWAY
UK
USA
HONG KONG

SPAIN

ITALY
AUSTRALIA
FRANCE
JAPAN

CANADA
DENMARK

SINGAPORE
GERMANY

FINLAND
NETHERLANDS

SWITZERLAND
Source: SG Cross Asset Research/Equity Quant, MSCI

75
JAPAN HAS MORE NET CASH BALANCES THAN OTHER REGIONS
Percentage of companies with a net cash balance (MSCI Indices)

50
% of companies net cash (%)

40

30

20

10

0
Denmark

France
Germany

Hong Kong
Sweden

United States

Spain

Australia
Switzerland

Italy
Japan

Singapore

Canada
United Kingdom
Netherlands
Source: SG Cross Asset Research/Equity Quant, MSCI, FactSet

76
SGQI JAPAN VS NIKKEI 225 YEN SENSITIVITY

Source: SG Cross Asset Research/Equity Quant, FactSet, IBES

77
SGQI JAPAN PERFORMANCE

Launch Date

Source: SG Cross Asset Research/Equity Quant, Bloomberg

78
CONCLUSIONS
• Central bank policies have resulted in record valuations
and record levels of corporate leverage – well done!
• US corporate sector is vulnerable; average corporate
profitability is weak and balance sheets are in a
dangerous state. US small caps could be the source of
the next market crisis.
• Central banks will not be able to hold back the wave of
balance sheet issues in 2018, as they couldn’t in 2017.
• Will still like Japan, the equity market is cheaper and less
leveraged than Europe or the US and now represents a
sensible long term investment proposition..

79
APPENDIX - DISCLAIMER
IMPORTANT DISCLAIMER: The information herein is not intended to be an offer to buy or sell, or a solicitation of an offer to buy or sell, any securities and has been obtained from, or is based upon, sources believed to
be reliable but is not guaranteed as to accuracy or completeness. Material contained in this report satisfies the regulatory provisions concerning independent investment research as defined in MiFID. Information
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