Catalan crisis making some noise, but trend remains supportive in Europe.
As expected, some banks’ earnings have disappointed. Although this sector was, and remains, under close watch, as it was over-owned by many investors, economic data remained supportive, suggesting an increasingly strong and synchronised recovery. ECB President Mario Draghi confirmed that there was indeed an ongoing recovery in Europe.
Our active position exposed to the global (especially American) markets contributed positively as the USD strengthened against the EUR. We continued to reinforce our position in Food & Beverages and Health Care Equipment, but without allocating a higher grade to Healthcare as a whole.
For the rest, we still favour Consumer Services companies and Technology, as the latter is still driving the markets.
IT still driving the markets
The Healthcare sector suffered somewhat after a long run, due to disappointing results that the more volatile investors took as an excuse to take profit.
However, the US markets were again driven by the IT sector, one of our main convictions year-to-date.
Our US tactical sector allocation remains unchanged, and thus our pro-cyclical tilt.
Korean situation calming down but noise around NAFTA discussions
Emerging markets outperformed again in October despite stronger US rates and a higher US dollar.
The Asian region performed strongly, while Latin America lagged due to weak LatAm currencies (e.g., MXN and BRL downturn), with Mexico suffering from increased tensions around the NAFTA renegotiations.
As elewhere in the world, IT was the best contributor; Healthcare is also a driver in the Emerging Markets.
We took some profit on Industrials and downgraded the sector to Neutral, and, considering the strong trend behind Healthcare in EM, upgraded that sector to “Overweight”.
Our other convictions remain unchanged:
We are overweighting China, and have underweighted Mexico due to their complicated relationship with their powerful neighbour.
We are overweight Technology, which remains a very strong driver in the Emerging Markets.