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Global Investment Views: Equity - May 2018

Perspectives» |

May 3, 2018

Fundamentals are the Compass in Choppy Markets

The second leg of market downside has driven some rotation in the market, pausing the outperformance of cyclicals vs defensives. But it’s too early, in our view, to call for a structural rotation of themes, and the trend favoring cyclicals is not definitely over. Currently, sentiment indicators are neutral, but not negative, cash has not been raised massively in investors’ portfolios, and valuations have become more compelling across the board (especially in Europe and Japan). We believe that the fundamental picture (earnings growth) is still consistent with a constructive view on equities, with swings in the market and opportunities for investors coming from bottom-up security selection.


Fundamentals have not changed materially, but in this new more volatile phase of the market, there is a mild repricing of defensive themes. Due to the still-positive macro picture, with capex acceleration and strong domestic consumption, the earnings season should be supportive for the market, and the euro appreciation effect should start fading in the second quarter. We believe that the fall in yields, as a consequence of geopolitical risk, is temporary. Despite market fluctuations, we remain constructive on banks and insurance, and prudent on real estate, telecoms and utilities. As the cycle matures, we also pay great attention to the sustainability of earnings. We also believe that a balanced approach, with limited sector or style biases, is appropriate, as the opportunities lie more at the bottom-up level based on earnings.

United States

Fundamentals are generally strong across the US market. US consumption is quite healthy, as lower taxes, easing regulation in many sectors, and rising capex/R&D are overwhelming other pressures, such as wages, raw materials, logistic costs and increased competition. Market support is expected to come from the earnings season, with the boost from tax reform in a contest with strong economic expansion. Broad market valuations have become more attractive, but we believe some hyper-growth stocks are still excessively valued, and the market has started to become more selective. On FANG stocks, we believe these companies will continue to be the target for increasing regulation on the issue of privacy. However, we note that the equally-weighted tech sector has been outperforming the market-cap-weighted tech sector, reiterating the importance of active selection. Here, we like companies that could benefit from an expansion of IT spending supported by tax reform. Good examples are cloud infrastructure and applications. Selection also will be the name of the game in sectors such as consumer staples and telecoms, which can be affected by secular disruption. We favor stocks with sustainable business models and reasonable valuations (opportunities in banks, energy stocks), while we are cautious on industrials, where cyclicality is over-priced.


Emerging Markets

The past earnings season highlighted positive momentum as well as EM resilience vs DM despite trade talks. This is a sign, in our view, of greater attention to domestic growth stories and reduced imbalances. For this year, we have  increased our EPS forecasts to the upper single-digit range, mainly due to the oil outlook and supportive global trade. Our preference is still for cyclical sectors. China is the country where earnings forecasts have increased the most, due to stronger domestic demand. On Russia, we are still constructive on stocks that are exposed to domestic recovery and oil, but we have become more and more selective as the country risk has increased due to recent sanctions and Syria tensions.



Important Information


Unless otherwise stated, all information contained in this document is from Amundi Pioneer Asset Management (“Amundi Pioneer”) and is as of April 30, 2018.


The views expressed regarding market and economic trends are those of the authors and not necessarily Amundi Pioneer, and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading on behalf of any Amundi Pioneer product. There is no guarantee that market forecasts discussed will be realized or that these trends will continue. These views are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets or sectors will perform as expected. Investments involve certain risks, including political and currency risks. Investment return and principal value may go down as well as up and could result in the loss of all capital invested.

This material does not constitute an offer to buy or a solicitation to sell any units of any investment fund or any service.


Date of First Use: April 30, 2018.


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Contributing Authors

Ken Taubes
Chief Investment Officer, US, Amundi Pioneer


Diego Franzin
Co-Head of Equities, Amundi

Ken Taubes
Executive Vice President,
Chief Investment Officer, US