“For the second half of the year preference for Europe and cyclical stocks”

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Nadège Dufossé (Candriam) for the second half confirms a prevalence of risk-on in the portfolio but maintains coverage against equity risk

An increase in exposure to asset classes and regions that present interesting valuations and which will benefit from the recovery, continuing to maintain hedges, in particular on the equity component. These are the broad portfolio indications for the second half year formulated by Nadège Dufossé, CFA Head of Asset Allocation di Candriam. The expert, in her analysis, starts from the two opposing forces that are conditioning the financial markets. And that is, the economic data, which since June seem to outline a rapid recovery of activity, and the spread of the virus, which still appears far from being contained globally, which feeds fears of a second wave which could jeopardize the economic recovery, despite the support of governments and central banks.

GOLD IS STILL VALID IN THE ROLE OF SHOCK ABSORBER

“In the portfolio, risk on prevails (with preference for Europe, for some value sectors and for emerging assets), but we maintain hedges against the equity risk, in order to limit the impact of residual volatility “, he says Dufossé. Candriam’s expert, pointing out the context of low rates the result of the massive support of central banks, it looks at asset classes that play a role of shock absorber and sees inoro an option still valid. “Its price has a negative correlation with the trend in real rates, which fell due to the intervention of central banks. Even in view of the economic recovery, financial conditions should remain accommodating and therefore favorable for the yellow metal, “he explains Dufossé.

WHY PREFER EUROPE

Preference for theEurope it is also due to the fact that in the European equity indices there is a greater weight than the cyclical component, which should generate one outperformance when the economy recovers. A choice also linked to the management of the virus, which appears to have been more effective in Europe than in the United States, and also to the employment protection measures implemented by governments which should allow a more measured increase in the disoccupazionand European and, at the same time, a more rapid recovery of activity.

BANKS CAN BENEFIT FROM THIS RECOVERY PHASE

In this context, the expert of Candriam, in addition to having a constructive view on the European peripheral debt and negative on German government bonds, it has strengthened exposure to more cyclical sectors what’s up titoli value. “We believe that the banking sector can benefit from this recovery phase: the banks they show valuations, interesting from a historical point of view and tend to report good performances in the periods of economic recovery and, moreover, they benefit from the support of the ECB “, Dufossé specifies.

WHY REDUCE EXPOSURE TO UNITED STATES ACTIONS

On the contrary, from June it was decided to reduce the exposure to U.S. stocks, in light of two risks: on the one hand, the gextinction of the Covid-19 epidemic and its economic impact and, on the other hand, the probability of a “blue wave” at Presidential Elections next November. “The probability of a clear democratic victory – Presidency and Congress – has significantly increased and could have negative impacts on different sectors (in particular for healthcare or energy). More generally, however, if some points of the program Biden (increase in corporate income taxes or minimum wages) seem harmful, others (infrastructure program that takes into account the environment and a possible relaxation of international relations) make it more difficult to determine theoverall impact on the American market ”, concludes the expert from Candriam.

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