26 JUN


Equities , Asset Class

We favour US and Emerging equities

European Equities

EMU equities

The region is still one of robust economic expansion but uncertainties have arisen recently (new Italian coalition, potential trade conflict with the US, weaker activity indicators). Ending its QE by the end of this year, the ECB remains accommodative and in no hurry to hike rates. We prefer small- and mid-caps to large-caps.

Europe ex-EMU equities

The region has lower expected earnings growth and thus lower expected returns than the continent, justifying our negative stance. “Brexit” negotiations remain a risk, while negotiations on new trade relations are stalling.

In terms of sectors

IT remains the leading sector, but seems overvalued, while Telecom lags. Our tactical move to neutral paid off well, in view of the political situation in Italy.

We maintain our strong overweight in Consumer Staples.

US Equities

The improving earnings growth and the positive impact of Donald Trump’s tax reform and deregulation are supportive of the asset class. In addition, valuations are no longer too expensive. The “America First” policy is likely to impact other countries negatively.

In terms of sectors

The best-performing sector was IT rather than Utilities, which suffered the most. Earnings revisions were supportive of cyclical stocks.

To be neutral, we took some profit on high-beta Energy stocks after our tactical call and strong run. We are keeping our neutral position in Financials.

Emerging Equities

Emerging equities are benefiting from strong global growth and an attractive relative valuation. Our preference goes to emerging Asia, the cornerstone of the technology sector (28% of the MSCI Emerging Markets Index). We do not foresee a global trade conflict.

In terms of sectors

Healthcare was the best-performing sector, while Telecom lagged. We upgraded our overweight in China, which is acting as a “safe haven” amidst the current emerging market volatility. We downgraded Brazil to neutral following expectations of an economic slowdown.

We remain overweight in Technology, Healthcare, Materials (as fundamentals remain strong) and Energy.