Underweight European equities in the short term.
It is too early to strengthen equities according to Cholet Dupont | photo credits: shutterstock
After six weeks of a fine rebound at the start of the summer, the financial markets fell sharply in the second half of August due to the priority displayed by the central banks in the fight against inflation. ” The fixed income and equity markets therefore started to fall again and lost a good part of their previous gains.explains Vincent Guenzi, strategist at Cholet Dupont. What does the traditionally less buoyant autumn have in store for the financial markets? Probably volatility if you look at all aspects of the current environment. »
Indeed, the economy continues to slow down, particularly in Europe. “The activity is approaching stagnation after being very decent in the first half. The economic consequences of the war in Ukraine are spreading due to shortages of certain products as well as the new explosion in gas and electricity prices. This weighs on the purchasing power of households. However, there was no shortage of gas. What about a harsh winter? Simply maintaining energy prices at the current level is recessive. It is to be hoped that public support will be sufficient to compensate for it. Given these parameters, the probability of a recession in Europe in the 4th quarter and the following first quarter has become significant. »
Other negative points, the recovery of the Chinese economy is penalized by the return of confinements and by the real estate crisis which is intensifying, monetary policies should tighten further due to the maintenance of high energy prices and the geopolitical context remains unfavorable with a continuation of the war between Russia and Ukraine.
The United States better armed than the Old Continent
” In conclusion, the environment seems rather risky and should weigh further on the financial markets in the coming months. However, the United States seems better equipped than the Old Continent and than China because of its energy independence. ” The probability that the European indices will make a new low point seems higher than on the other side of the Atlantic. But let’s not forget that the decline in prices already anticipates an economic slowdown. So a further decline in Europe would be small, except in the event of a deterioration exceeding current expectations.. »
This is why Vincent Guenzi is underweight European equities in the short term, while he is neutral on other geographical areas. But it remains overweight in the medium term on American and European stocks. In terms of bonds, all asset classes are underweighted in the short and medium term, with the exception of US government bonds and emerging debt, where neutrality is required over both periods.
Investing opinion
We are maintaining our neutrality on equities, but also favoring Wall Street in the short term to the detriment of the Old Continent. We would take profits on the Cac 40 if it returned to 6,600 points, its recent multi-month high.