Candriam: Belfius investment partner

16 MAY


Equities , Topics

Solid earnings season


European equities: Cyclical sectors at the forefront

European equities once again delivered positive returns. Unlike last month, the move  higher was led by the cyclical sectors and by 2018 beaten-up stocks, with oversold cyclicals and euro zone banks the outperformers in Europe. Markets were driven by: 1) the ECB, which stayed dovish; 2) the improvement in global economic data; and 3) the earnings season which surprised positively. 

We kept our overweight positions in Financials while reducing our Information Technology position to ‘neutral’ by taking some profit as we see few upside left in Europe followed by trade deal uncertainty.


US equities: Supportive economy

Global equities continued to perform well in April, with a positive earnings surprise in both the US and in Europe.

Concerns around global growth took a back seat as investors turned their attention to the Federal Reserve’s dovish commentary. The Fed continued to over-deliver against already very dovish expectations with the majority of FOMC participants now expecting zero hikes this year (down from a median projection of two hikes last December) and with a more accommodative than expected statement on balance sheet.

Delivery was healthier than consensus expectations, with all sectors (except commodities) printing positive growth. The earnings of commodity sectors – Energy and Materials – are down double digits in Q1. Overall top-line growth is holding up well, with more than half the companies beating estimates. Overall, US economic data remained solid in April, indicating that the economy continues to grow above trend.

The healthcare sector and, even more, the biotechnology sector, witnessed a correction during the month, with performance diverging from the general global equity climate. Such extreme differences are obviously not company-specific but have a top-down reason, and again this time it was politics. The sell-off started very broadly, hitting all healthcare sub-sectors but, by the end of the month, although some selective names, mostly in medical technology, had started to recover somewhat, pharma and biotechnology companies remained at the lower levels. Medical and regulatory news was sparse, ahead of the traditionally busier conference calendar of early summer, making the impact of political statements even worse.

We are still constructive on US equities as the economy is supportive with a good productivity and consumption stance while inflation stay at moderate level. We kept our position on Health Care as the current earnings season remains positive (and we do not think the proposed “Medicare for all” solution would in that form make it through Congress) while we tactically reduced our IT exposure to ‘neutral’ as trade negations between the US and China have turned sour.


Emerging equities: Performing but lagging global equities

Emerging Market equities posted a positive return in April, despite still underperforming developed equities
EEMEA outperformed the broader market, driven by South Africa (one of the best-performing markets after Egypt), thanks to positive election expectations and a stronger ZAR. Turkey and the Lira, on the other hand, were down, following the local elections.

In Asia, the Tech recovery – driven by large-cap tech names – supported Taiwan, while political uncertainty kept Indonesia and Thailand waiting for the release of the election results.

Chinese stocks rose further, driven by the bottoming-out of activity in response to prior policy-easing and optimism about productive US-China trade negotiations. However, in the second half of the month, concerns about a slowing-down of China stimulus lessened performance.

Mexico (one of the best market performers in LatAm) posted a positive performance over the month, as political noise had faded while investor optimism had surged. The North Korean and Russian leaders met during the Russia-N. Korea summit in April to discuss a denuclearization deal.

Over the month, the Mexican and Philippine pesos and the Russian ruble were the best-performing currencies. Oil prices continued their uptrend after Trump's cancellation of the sanction waivers on Iranian oil imports. Sector-wise, Consumer Discretionary was the best-performing sector in EM, while Utilities and Materials lagged.

We decreased our Materials exposure to ‘neutral’ by taking some profit as markets become more volatile. We maintained our ‘overweight’ exposure in China, driven by a dovish Fed and government stimulus while monitoring the trade talks for our next move. Besides trade discussions - earnings, the Fed, the USD and local politics (with several elections ongoing and in the pipeline) are some of the drivers to watch for in the weeks to come.