The markets delivered an even performance in June. Only Europe corrected. Emerging countries held steady thanks to Asia.
Earnings season is coming, and some analysts may take advantage of this outlook to lower some of their forecasts. As we see it, however, second-quarter results will be satisfactory, especially in the Eurozone.
The UK is getting hit with the worst analyst revisions, compared with other regions.
Europe is expected to outperform the US in terms of growth over a 12-month period.
Europe consolidates after a solid first quarter
In our view, the Eurozone is still the most attractive market.
Investment flows were a little disappointing in June, but nevertheless maintained their potential.
The Eurozone held on to the top spot in our equity portfolio allocation.
We are continuing to invest in companies exposed to the strength of the European economy, or at least the continent (we are still more reserved when it comes to the UK).
We have noted two interesting phenomena in the financial sector.
The first is the prospect of interest rate hikes, albeit small ones, but enough to help banks improve their profit margins. We think this steepening of the yield curve has been insufficiently priced in by the market. Spain and Italy hold some nice potential in this respect.
The second is the likely delay in the implementation of certain regulatory frameworks, such as Basel IV, giving the sector a little breathing room.
As a result, we still have a positive view on banks, have returned to “neutral” on insurance companies, and are back to our overweight stance on the European financial sector as a whole.
We would point out that Healthcare, which we have significantly overweighted in recent months, has recorded a spectacular increase. This is a good time to take some profits, given that the upside potential has largely been tapped, and that the sector may be hindered when the rate hikes are enacted. Consequently, we have brought the Healthcare sector back to “neutral” (versus “overweight” before).
Otherwise, our European allocation is unchanged.
An even performance in June, driven by Healthcare and Finance
The US is currently enjoying one of the longest uninterrupted periods of growth in the country's modern history. It took a breather in June, but the global indices were kept afloat by strong performances in Healthcare and especially Finance.
Our overweight position in Healthcare and Industrials once again paid off this month.
We were underweight on sectors such as Telecoms and Infrastructures, both of which delivered the weakest monthly performances on the other side of the Atlantic.
Casting the only shadow over the landscape was the IT sector, which began to catch its breath again.
Overall, we are holding the main lines in our tactical allocation.
Asia drives growth in the region, Brazil is gripped by political risks
Emerging markets are back on track after turning in a strong YTD performance.
Asia came out on top again thanks to its relative stability. Mexico did well, although Latin America was dragged down by Brazil's troubling political turmoil.