Steen Jakobsen
The Bank of Japan has abandoned quantitative easing and the European Central Bank may taper its bond-buying programme, so what is the role of central banks in 2017, asks Saxo Bank’s chief economist Steen Jakobsen.
Article / 30 June 2016 at 15:31 GMT

Spectacular fall in long-run corporate earnings growth

Head of Equity Strategy / Saxo Bank
  • 10-year annualised corporate earnings growth fallen to lowest since 2005
  • Real profit growth has been 1.6% negative in real terms
  • Paradoxically, the MSCI World AC is up 3.1% annualised in the same period

  • Majority of appreciation has happened on expanding valuation multiples


10-year annualised corporate earnings at lowest since 2005. Photo: iStock

By Peter Garnry

This chart of 10-year annualised growth in net income across US, European and global companies is staggering. It shows that earnings growth has not been weaker among global companies since 2005.

The 10-year annualised growth rate in the MSCI World AC Index is down to 1.4%. If we deduct global inflation of around 3% the past 10 years then real profit growth has been negative 1.6%/year. Nevertheless, the MSCI World AC is up 3.1% annualised in the same period (2005-16) and 5.9% annualised if dividends had been reinvested.

Corporate profit growth
The majority of this appreciation has happened on the backdrop of expanding valuation multiples. The trailing P/E ratio has gone from 16.7 to 20 in that same period.

So the price investors are willing to pay for realised earnings have gone up in a period with earnings and macro growth slowing down rapidly. 

This valuation multiple expansion has only happened thanks to central banks pushing down alternative investments down in expected yield terms.  The chart below shows the current situation in the equities/fixed-income space in Europe.

Dividend yield vs bond yields in Europe
The 10-year annualised growth rates are obviously pulled downwards by earnings reaching a very high level in aggregate terms in the summer 2006 before the credit crisis evaporated earnings. Since I circulated the first research note to clients, I had many coming back saying they would like the aggregate corporate earnings as well, so below I have inserted the chart.

Global corporate earnings since 1995

The current base effects will extend into 2017 as 2007 had even higher aggregate earnings than 2006. However, the base effect will disappear as we move into 2018 and 2019. But it does not change the fact that we are indeed operating in a historically low-growth environment in terms of both macro and corporate earnings.

— Edited by Martin O'Rourke

Peter Garnry is head of equities strategy at Saxo Bank


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail