19 JUN

2017

Equities

Europe remains our favourite region for the coming months



Executive Summary

On the whole, the equity markets extended their rally in the first two weeks of May.
They hit turbulence mid-month, after the Fed's comments, and above all the US investigations into Russian interference during the presidential election campaign.
The markets are driven by persistently robust macroeconomic data.
Analysts are regularly raising their corporate earnings forecasts.
Global investment flows are undeniably veering towards Europe, still our favourite region for the coming months.
Technology and innovative companies are also key market drivers, with only those markets highly dependent on energy (oil) prices lagging behind. 

 

European Strategy

European market rally confirmed on the back of solid data

The euro zone is still the most attractive market, with investment flows flooding in at a faster pace.
It is still our top regional pick in terms of equity allocation.
The European rebound is the focal point of our tactical approach, placing euro zone domestic stocks at the top of our list.
Style-wise, we think high-quality innovative companies generating internal structural growth will earn the strongest performances in the medium term. 

As a result, our allocation is unchanged.

  • The healthcare sector is still overweight in our portfolios, boasting a number of particularly innovative names.
  • In the financial sector, we are keeping our overweight stance on retail banks (instead of insurers), benefitting from declining risks in the euro zone (since the French elections).
  • Some European cyclicals are also overweight, such as consumer services, but we are neutral on industry in general.
  • Finally, we think technology is still a good medium-term investment.
  • We are maintaining a cautious view on the energy sector, which is not profitable over the long term, in light of its capital cost.
  • We are still steering clear of telecoms and utilities.


US Strategy

Investigation into Russian election interference, but solid economic fundamentals

The US is currently enjoying one of the longest uninterrupted periods of growth in the country's modern history. Earnings revisions are on a positive trend and the tech sector is sitting squarely in centre stage.

We are therefore holding the main lines in our tactical allocation.

  • We are “neutral” on the financial sector, given the likely slowdown in the steepening of the US yield curve, but will be keeping a closer on the sector nonetheless.
  • We are staying underweight on low-potential sectors such as telecoms and utilities.
  • Aside from the Telecom sector, which we are giving a particularly wide berth, the sectors are slightly less noteworthy than in previous months, both from an overweight and underweight standpoint, with part of their journey already behind them.
  • In the wake of their drop, energy stocks are too low to be sold, but offer too little potential to be bought.
  • Techs are the stars right now, even if they will need a breather every now and then.


Emerging Market Strategy

Asia on the rise, LatAm and Russia hurting

Emerging markets have recorded the strongest performance year-to-date, driven by Asia, which in turn is benefiting from solid global economic health.
We still have a positive view on Asia, with a preference for South Korea and China.
Russia has been tripped up by recent trends in oil-related companies.

  • We are maintaining our underweight stance on telecoms, struggling in emerging markets as they are worldwide.
  • We are also keeping our cyclical bias (especially on techs) to continue taking advantage of the positive global climate.
  • Our geographic allocation is relatively unchanged; only Brazil was downgraded to “neutral” owing to political tensions and the trial of President Temer.