Consumer Staples undervalued; potential upside for oil prices
In line with the global market moves, IT and Finance underperformed in March, while Utilities benefited from a catch-up effect.
We increased our exposure to Consumer Staples as the sector seems to be deeply undervalued by the markets, but remain overweight Real Estate as the latter still presents upside potential.
Although it seems too early to massively raise our exposure to Cyclicals in Europe, we are monitoring the case closely.
We are (tactically) overweight the Energy sector, as we also are in other regions, given there might be some tension on certain oil types, and as the geopolitical context (Syria, Iran) supports a further oil-price rise.
Higher oil prices; fundamentals still strong
In the wake of geopolitical tensions, combined with the Cambridge Analytica scandal, US Markets suffered. Utilities stocks performed well, due to a catch-up effect, while the Energy sector benefited from higher oil prices. Finance, IT and Materials suffered the most.
Global investors took profit from the IT sector, but fundamentals remain strong in our eyes, despite the higher asset valuation.
In the short-to-medium term, we do not see profit warnings; most earnings should be in line with expectations. We remain positive on companies with intrinsic growth, although we expect volatility to remain high.
We have (tactically) increased our exposure to Energy stocks, as recent geopolitical tensions and the discussions with Iran might increase oil prices.
We are maintaining our cyclical bias, mainly through our overweight in IT stocks (fundamentals remain unchanged), followed by overweights in Financials, Industrials and Healthcare.
Strong global investor appetite for Emerging Markets
The global sell-off impacted Emerging Market equities, too; driven down by IT, EMEA was the weakest region, while Asia did well in relative terms.
We remain constructive on EM outlook. A stable-to-weaker USD, lower yields in the US and a strong Chinese economy will remain strong supports for Emerging Markets as a whole.
Technology will remain the driving sector, as we see upside potential on both volumes and prices.
We are keeping our techno/pro-cyclical tilt in the portfolio. Despite the recent nervousness on the markets, there may be an increase in technology-related sales volumes, and in pricing.