Author: Zhang Zeyi
UBS believes that in the future, the impact of vaccine expectations, mobility and staff turnover will be flat, the market will transition from valuation-driven to profit-driven, and emerging market cycle stocks may be the best option.
According to UBS's analysis, the current market rally can be said to be affected by three main factors: vaccine research and development, liquidity and liquidity.
UBS said that since mid-AprilThe S & P 500 rose 19%, with mobility driving 14%, improved turnover 6%, and expectations for vaccine research and development 5%.Then other factors, such as increased uncertainty, reduced the index by 6% and 7%.
So when the time comes to the fourth quarter of 2020, which factor is the most important to the current market?
The influence of flow rate tends to be flat.
According to UBS, since April 10, when market liquidity bottomed out, the s & p 500 has risen 19% since then, with liquidity contributing the most, pushing the s & p 500 up 14%. In other words, 77% of the increase is due to ample market liquidity.
But in the past month or so, the contribution of liquidity has flattened, as measured by UBS from two angles:
Risk-free interest rate (affecting US real interest rates, bond volatility and maturity premium)
Risk premium (affecting stock volatility, currency volatility, Treasury spreads and corporate debt spreads)
According to the calculation of these two indicatorsLiquidity tightened rapidly as risk premiums soared in March. Subsequently, the risk premium gradually normalized, the risk-free interest rate continued to fall close to zero, and liquidity improved. This is shown in the following figure.
(figure: during the outbreak, the risk premium soared and the risk-free interest rate went down. Source: UBS)
However, in the last month, the change of risk premium and risk-free interest rate tends to be flat, and the growth brought by liquidity to the market tends to be flat, but it can never be negative.
Personnel turnover has a direct impact on economic performance.
The improvement in turnover may be the best measure of economic growth, and the increase in the number of people traveling has directly improved risk appetite across the market, sending the S & P 500 up 6%, according to UBS's model.
(figure: source of change in world turnover: UBS)
Vaccine stocks already have a premium of more than 50%.
To measure the contribution of vaccine R & D expectations to the market, UBS selected seven days when vaccine research and development made significant progress, modeled based on the share price performance of vaccine companies over those seven days, and concluded that expectations for vaccine research and development pushed the S & P 500 up 5.3%.
(figure: current factors driving the rise of the S & P 500: UBS)
At the same time, the successful development of the vaccine and large-scale vaccination will gradually bring the turnover rate back to normal, so on the other hand, before the vaccine is successfully developed, the lower turnover rate actually reduces the proportion of the vaccine expected to drive the market up.As a result, UBS believes that there is already a 55% or so 60% premium in the current vaccine stock price.
In the future, the impact of vaccines, mobility and staff turnover will all tend to be flat, and the market will be driven by profits.
The vaccine will eventually be successfully developed, and personnel mobility and economic data will slowly recover, so where will the next market gains occur? UBS believes that now is the best time to lay out cyclical sectors, especially emerging market stocks, in the run-up to the US election.
Liquidity changes most slowly, but it can have a huge impact, and given that liquidity is already hard to ease, the current contribution of liquidity to the market seems to have been exhausted. This means that the market will enter a new stage, valuation is no longer the main driving force of the market, followed by profitability-led market.
Edit / irisz