The Big Picture - European Equity Outlook
In May, US-China trade tensions returned to the forefront, reviving fears of a global slowdown: the NY Fed indicator has now reached 30% probability of US recession in the next 12 months. As a consequence, European equity markets have corrected over the last month, but they remain up by 10% since the start of the year.
So what to expect from now on and how should equity investors position in Europe? Societe Generale Equity Strategists have just released The Big Picture – Third Quarter European Equity Outlook in which they share their convictions on markets and some key recommendations to navigate these volatile equity markets and to take advantage of the current historically low yield environment.
European equity funds have seen outflows of almost $200bn over the last three years. This is not a capitulation but a rebalancing of global portfolios, as the weight of European equities in global equity markets is now back to an all-time low. In the view of the strategists, this trend could continue as Europe looks to be on its way to “Japanification”, which will have profitability and valuation consequences on the European equity market.
According to the views of the strategists, the European equity market is already pricing in higher PMIs and higher return on equity. Also, cyclicals are still trading at close to all-time highs relative to defensives in Europe. In other words, markets are not fully discounting the trade war risk, the political risks (Brexit, Italy), or the earnings downgrades.
In the report, the strategists set out their recommendations to reshape equity portfolios at the country, sector and thematic levels; as well advice on how to optimize the hedge against trade war risks and global cyclical concerns more generally.
About Societe Generale Cross-Asset Research
Societe Generale Cross-Asset Research is composed of more than 200 Analysts, Strategists, Economists and Quant, combining their expertise into ‘Research-based’ and innovative solutions suited to client’ needs: fundamental studies and expert views, investment ideas and long-term strategies, trade ideas and tactical baskets, thematic and systematic indices, quant solutions. On top of its established UK and Western European base, Societe Generale Cross-Asset Research benefits from a global coverage thanks to its presence in the US and in Asia (Hong Kong, Singapore, Tokyo and Bangalore) and Societe Generale local networks in Eastern Europe.
This editorial contains financial analysis which reflects the opinion of the Cross-Asset Research department of Societe Generale at the date of its publication. It does not necessarily reflect the views of the other departments of Societe Generale nor the official opinion of Societe Generale. This interview is dedicated to institutional and professional investors and is not deemed to be seen and used by retail investors for investment purpose. The viewers shall consult their own financial advisers to make their own appraisal.