White Paper

Equity Market Pulse, Issue 2 – Q4 2014

Company: S&P Capital IQ

S&P Capital IQ case study

Category: Private Equity

Published: 19 March 2015

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Overview

Driven by S&P Capital IQ'sTM proprietary data and analytics, Equity Market Pulse provides professional investors with insights into global equity market fundamentals and performance at a glance. Spanning developed and emerging markets in the Americas, Europe, and Asia, it provides perspective on valuations, operating efficiency, and investment strategy effectiveness. The analysis is broken into four themes:

Operating Performance-Trends in operating performance with return on equity deconstructed into: net profit margins, asset turnover, and financial leverage.

Valuation-Analysis of valuation multiples coupled with consensus outlook for earnings and revenue growth.

Risk And Return-Tracks the dynamics of equity market returns and volatility.

Strategy Returns-Examines the performance of eight common investment strategies employed by global investors.

Executive Summary

The S&P 500® continues to be the preeminent regional performer in terms of both financial results and price appreciation, with the highest return on equity (ROE) of all nine regions and a year-to-date total return second only to Emerging Asia.

Investor preference for developed markets continues, as developed markets show rising P/E multiples versus the emerging markets on much stronger financial performance.

Developed markets saw year-to-year increases in ROE and net profit margin, while emerging markets saw declines in ROE, profit margins, and asset turnover.

Emerging markets appear cheap on a valuation-to-projected-growth basis, with forward P/E to earnings growth (PEG) ratios of less than half those of the developed market average.

S&P Capital IQ's factor library results show fundamental-based investment strategies outperforming across geographical regions, with price and size-based strategies consistently underperforming YTD. We see this dichotomy reflecting decreased investor appetite for risk and increased selectivity, as the global bull market ages.

Japan is showing improvement in net profit margin growth and sales volume, as well as a decrease in stock price volatility. Japan has lagged the global economy for some time and, with the second lowest ROE of all regions, in our view has substantial room for improvement.

 

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