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Healthcare and Staples Strongest Stock Market Sectors for North America and Europe in 2009;
Consumer Discretionary and Financials Weakest
As Ranked by Global Insight's Stock Sector Rotation Strategy Advisory
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Waltham, MA, 5 January 2009 - IHS Global Insight, the world's leading company for economic and financial analysis and forecasting, has released an updated stock sector rotation strategy advisory on stock market sectors holding the most promise for stock investors in the U.S., Canada and Europe for 2009. The 2008 forecast published a year ago, recommended sectors that subsequently outperformed the markets in the U.S. and EMU by 130 and 465 basis points, respectively.
Against a backdrop of extreme market volatility and prolonged recession, the 2009 IHS Global Insight recommended strategy ranks highest those sectors that are the least dependent on the business cycle, and which better retain pricing power, such as in healthcare and consumer staples in the U.S. and Europe. Next in attractiveness are telecoms and utilities, albeit more attractive in Europe and Canada than in the U.S. The worst performing sectors include financials and consumer discretionary, according to IHS Global Insight.
The U.S. Energy and Basic Materials sectors are less attractive due to slowing demand, exploration and drilling activity, combined with tight credit conditions and weak commodity and oil prices in 2009. In addition, the dividend yields and payout ratios from U.S. listed companies have not been as competitive as those in Europe and Canada. One source of returns from Energy may come from consolidation of smaller companies into larger ones, similar to trends that occurred in the Materials sector. The large, healthy balance sheets of the "majors" will be used to gain share and access to new markets, while credit is tight.
Information Technology is the largest sector in the market, and merits small overweight position in the U.S. and an equal weight in Europe. When compared to other sectors, the growth of "production volumes" from IT goods and services will remain among the strongest in 2009; the "software" part will fare better than the "hardware". In addition, payout ratios from IT companies have continued to rise, and the balance sheets of tech companies are generally in good shape, with a lot of cash, so not directly affected by the credit crunch. Despite these positive attributes, the growth rate of spending on IT has passed an inflection point, and will slow significantly in 2009, in line with declines in overall business and consumer spending. This view constrains the investment weighting strategy for IT to be close to neutral.
The Healthcare and Consumer Staples sectors retain the best attributes for an overweight position, largely due to their "defensive" nature. Along with Telecoms and Utilities, these sectors performed the best in 2008, and they are expected to continue this leadership through much of 2009. The prospects for Telecoms and Utilities are also relatively positive, albeit more attractive in Europe and Emerging Markets than in the U.S. Infrastructure sectors will benefit from government spending on economic stimulus, but the impact on relevant equity sectors will be larger in Emerging Markets than in the more established economies.
IHS Global Insight recommends an underweight in the Financials sector, both in the U.S. and Europe. Some of the valuation metrics for this sector do look attractive, such as a very high dividend yield, low P/E and Price to Book ratios. However, the dividend yield is in peril as payouts are expected to contract, and the "E" and "Book Value" in the denominator of the pricing ratios are still subject to significant downward revision. While banks and other institutions have already aggressively marked down the value of their assets, the quality of those assets are still under strain due to lingering weakness in mortgages and housing markets, and now also from worsening consumer credit and commercial real estate. The "old" business model for the financial sector is now busted, while new sources of growth have not yet emerged.
The consumer discretionary sector, which includes retail, autos and leisure, will be among the weakest in 2009, with additional bankruptcies expected to occur. Several segments within the industrials sector will also be vulnerable to slowing global growth, such as those exposed to the automotive industry, construction and mining.
IHS Global Insight's sector rotation strategy is based upon the company's expert macroeconomic, industry and financial analysis. It is part of its World Industry Service Stock Sector Rotation Strategy, which assists asset managers in identifying the most profitable sectors for investment in global stock markets. The sector rotation recommendations from last year, released in December 2007, proved to be particularly insightful as they accurately predicted several turning points in the financial and consumer sectors. The 2008 recommendations outperformed the overall market during a period of extreme volatility and turbulence, by 130 basis points in the U.S. and 465 basis points in the EMU.
To see the full sector rankings and for further information visit: www.globalinsight.com/SectorRotation.
Contact:
Mark Killion
CFA, MD, IHS Global Insight
+610 490.2547
mark.killion@globalinsight.com
Natasha Muravytska
PhD, Prod. Mgr. IHS Global Insight
+610.490.2558
natasha.muravytska@globalinsight.com
Jim Dorsey
Media Relations
IHS Global Insight
+781.301.9069
jim.dorsey@globalinsight.com
About IHS Global Insight
IHS Global Insight (www.globalinsight.com) provides the most comprehensive economic and financial information available on countries, regions and industries, using a unique combination of expertise, models, data, and software within a common analytical framework to support planning and decision making. Through the world's first same-day analysis and risk assessment service, IHS Global Insight provides immediate insightful analysis of market conditions and key events around the world, covering economic, political, and operational factors. IHS (NYSE: IHS, www.ihs.com) is a leading global source of critical information and insight that enables innovative and successful decision making for customers ranging from governments and multinational companies to smaller companies and technical professionals. IHS employs approximately 3,800 people in 20 countries.
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