Too Early to Call a Bottom – Berenberg

By Senad Karaahmetovic

While Berenberg analysts see “some support” from selected price action and valuation, they still believe that it is too early to call a bottom. Instead, investors should “continue to proceed with caution,” strategists wrote to clients in a note.

“Our analysis of key US macro variables (ie housebuilder confidence, manufacturing PMI, capacity utilisation and unemployment rate) suggests that investors should wait for further macro deterioration before turning bullish on equities,” they said.

The PMI downturn is still in the early stages and investors should wait for times when margins are low, which is not the case at the moment.

“Investors should only look to turn bullish when we are further through the PMI and margin downturn, in our view,” the analysts added.

While valuations are relatively low, analysts argue that recession risks are still not priced in.

“A strong global equity market timing signal in the last 50 years has been when global equities, on a median by-country basis, trade below a 10x trailing P/E – this ratio is currently 11.3x. We think investors will likely encounter a better entry point than this in coming months.”

“Overall, we still think it is too early to call a bottom to this bear market,” they concluded.

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