Data: drivers of stock market returns

Recently, Sean markowicz, a research and analysis strategist at Schroders, analyzed the driving role of earnings, profitability and valuation in different stock markets and their change prospects. Since novel coronavirus pneumonia has been epidemic,

has been a major factor driving stock returns since its rise. But looking back over the past five years, we have found some other driving factors. year to date, rising valuations have been the main driver of all market returns, but looking back over the past five years, we have found other drivers. – valuation (green column) – what happened to the P / E ratio? At present, is the market’s valuation of a company at a specific level of profitability high or low? – of the many markets in the chart above, U.S. stocks had the highest earnings growth, while investors also benefited from higher valuations. Thus, the basic factors of the United States in the past five years are the best among many markets. – in local currency terms, emerging market equity markets received the second highest total return, but nearly half of it was driven by higher valuations, while the return from earnings growth was minimal. The reasons include the sharp fall in commodity prices and Global trade. – performance in the UK and Europe has been driven by moderate earnings growth and dividends. However, these fundamental factors are not reflected in market valuations that have fallen sharply. Concerns about brexit, trade frictions, and the epidemic have all contributed to the market’s decline over the past five years. – although the United States is not immune to these challenges, its low sensitivity to Global trade and the concentration of technology companies mean that the market has not been substantially affected. When the exchange rate of foreign currency is less than P >, foreign investors need to bear the risk. On the one hand, portfolio returns may increase as well as drag on the other. Although this factor is not taken into account in the above analysis, overseas stock investment is sometimes affected substantially. for example, as the GBP / USD has weakened over the past five years, dollar denominated investors’ returns on the UK stock market have fallen by 5% a year. However, the return of pound settled investors in the US stock market increased by a relative 5%. similarly, for dollar settled investors, the strength of the US dollar reduced their returns on emerging market stocks by 2%, while emerging market investors’ returns in US stocks increased by 2%. looking to the future, the one-off support measures (such as reducing corporate tax) that have driven us profits upward will not appear again. In fact, if US presidential candidate Joe Biden is elected in November, that policy is more likely to be reversed. Without these earnings related positive factors, US stock market valuation would be more vulnerable to adjustment. as valuation dominates the fate of returns in emerging markets, the outlook is also relatively volatile. On the other hand, after several months of strict blockade measures, markets such as the mainland of China, Taiwan and South Korea, which account for about 60% of the emerging market index, have resumed most of their economic activities with relatively low interference. If this trend continues, earnings should be expected to rebound upward. supported by earnings growth, dividends provide a solid basis for returns on UK and European stocks. However, many companies have been forced to cut their dividend by 20% or more because of the global economic recession, and analysts have also lowered their long-term earnings forecasts. Although there is a lack of factors to support future returns, the current valuation has largely reflected this situation, so there should be room for recovery. in the case of Japan, analysts are optimistic about corporate earnings in the next few years as expectations of a rapid economic recovery have risen significantly. Last month, for example, the long-term profit growth forecast has almost tripled from about 4% to 11% a year. If investors believe that earnings will rise in accordance with this trend, all factors may have a positive effect.