European PMI services and manufacturing indices across the entire eurozone as well as in France and Germany are bullish for European equities. Newsflow is positive, including job creations, faster growth and even a return of inflation towards normal levels.
The European recovery remains at the core of our strategy, focusing on domestic cyclical stocks in the eurozone, while remaining wary of forthcoming elections, particularly in France:
- The healthcare sector, which represents our heaviest weighting, has returned particularly strong performances. We are taking partial profits in the sector, but nonetheless remain overweight.
- We remain positive on banks (vs insurers), which should continue to benefit from widening spreads between short and long term yields, but more selectively, as the overall risk-return profile of the sector has diminished slightly.
- We are also overweight on European cyclical stocks, but remain neutral among industrials, although we still hold positions in several companies such as Vinci, Siemens and Schneider, which may benefit from dissipating uncertainties after the French presidential elections and strong macro data in the eurozone.
- Lastly, we have also reduced consumer staples.
- We remain cautious regarding the energy sector, with the range bound of oil prices mainly due to the OPEC measures. In the long term, the sector is not profitable compared to its cost of capital.
- We are maintaining a zero weighting in telecoms and utilities, which are likely to remain under pressure, given the current interest-rate trend.