Company earnings across the developed countries remain strong and especially in Japan and the United States where they are benefiting from supportive fiscal reforms (see Figure 21). Strong earnings combined with poor equity market performance in 2018 have pushed valuation levels to their lowest level in five years, outside of the US.
The US corporate earnings picture isn’t totally linked to budget reform. After a fall-off between 2015 and 2016, pre-tax profits have recovered (see Figure 22). However a significant acceleration in wage growth will make further profit growth more of a challenge.
Emerging-market equities will need commodity markets to be more buoyant if they are to outperform their counterparts in the developed economies, and this despite the fact that the commodities sector has a lower weighting in the equity indices than previously (see Figure 23).
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