24 APR

2018

Equities , Topics

Mixed broad markets


Executive summary

  • Broad markets were mixed, in the wake of geopolitical tensions combined with the Cambridge Analytica scandal, which brought some volatility to the markets.
  • Technology stocks were under pressure, despite the good performance of semi-conductor and hardware stocks, while web services were down. Companies with advertising-first business models such as Facebook, Alphabet and Twitter faced criticism over their failure to protect user data content while helping Russia’s propaganda campaign influence the 2016 US elections.
  • The ‘Trump fiscal effect’ boosted US EPS growth for 2018 while global equity flows continued to benefit Emerging Markets.
  • The global direction should be positive as long as the markets remain below their Jan/Feb peak; visibility may later become more mixed.

Regional strategy – Europe

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.





Regional strategy – US

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.





Regional strategy – Emerging Markets

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.