Outside USA. Who is guaranteed growth in 2022

Posted 09 February, 2022

The US reporting season is in full swing. Just over half of the S&P 500 companies have already reported their Q4 2021 results, with another 83 due this week.

In general, companies report higher than analysts' expectations, and the highest revenue growth rates were shown by representatives of the energy sector.

Investors are pleased not only with the reporting of companies but also with global macroeconomic data, which also exceed analysts' expectations. At the same time, statistics in the US are below forecasts.

We believe non-US markets will outperform this year and expect emerging markets to catch up as geopolitical tensions ease.

How do companies report?


  • EPS at highs


In general, companies report better than expected. More than half of the S&P 500 companies (56%) have already released their Q4 2021 financials, of which 76% beat analysts' forecasts on earnings per share. In the last quarter, the EPS of the broad American market once again renewed its historical highs.

And while companies are already starting to lower earnings forecasts, the situation is still favorable: EPS continues to rise above pre-pandemic highs and has not yet reached a plateau, as it did in mid-2018 and early 2020. 


  • Energy Sector Leads Revenue Growth


Of all 11 sectors, the energy sector reports the highest revenue growth (on an annualized basis): +87.7%. 

At the same time, the forward P/E for 12 months of the energy sector is estimated at 12.5. For comparison, the average forward P/E of the S&P 500 index is 19.7, and the highest estimates for this indicator are in the Consumer Discretionary and Information Technology sectors (26.7 and 25, respectively). 

Macro data outperforms expectations

The global index of "economic surprises" returned to the positive zone, which underlines the more favorable economic situation than analysts had expected.

The Citigroup Economic Surprise Index (CESI) shows how the published macroeconomic data is better or worse than public expectations. If the indicator is positive, it means that in recent months most of the published data turned out to be better than analysts' forecasts, and vice versa.

At the same time, the "surprises" in the US have ended, which is probably due to a surge in inflation and the expected slowdown in the US economy.

This once again confirms our expectations of outstripping the growth of economies outside the US, especially emerging markets.


What does the PMI index say?


The global PMI index reflects business activity in industrial production around the world. An index level above 50 indicates growing activity, below 50 - declining activity. The data is published every month.


  • Four Modes of the World Industrial Production Index


JP Morgan analysts identify four modes of the Global PMI Manufacturing index:

1. Beginning of growth: index < 51 and growing,

2. Completion of growth: index > 51 and growing,

3. Beginning of decline: index > 51 and falling,

4. Completion of decline: index < 51 and falling.

In each of these regimes, there are patterns in the behavior of different asset classes. Their analysis can answer the question of what to expect in the markets in the near future.

Since May 2021, we have been in the third mode: the global PMI is declining, but has not yet overcome the bar of 51, in January 2022 the index came out at 53.2. 

How did different asset classes behave in the third mode?

Historically, in the third mode, emerging markets, small caps, Europe and the United States performed best among stocks, and commodities and EM currencies among other assets. US Treasuries also showed leading dynamics, but now, against the backdrop of the Fed's rate hike, this may not be the case.


  • How are the past growth leaders of the third regime of PMI now behaving?


This time, only commodities markets fully live up to expectations: the S&P GSCI Commodity Index has grown by 26% since May 2021. The leading position here is occupied by oil (+37%):


  1. The OPEC+ countries have maintained the conditions for a gradual increase in oil production by 400,000 barrels per day. 
  2. Despite this, technically the cartel has not yet met the requirements due to the inability of some members of the group to increase production volumes.


Also, European and American stocks behave more or less close to the historical canons, but emerging markets are very far away. The main reasons are geopolitical risks in Russia and last year's "regulatory tornado" in China.

We hope that the latter is a thing of the past: the rhetoric of the Chinese authorities, who are trying to calm the investment community, speaks in favor of this. As soon as the geopolitical situation stabilizes, we can count on very good catch-up growth in emerging markets.

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