Fortissimo

  • The equity bull market is taking another step forward. The investment world never had much doubt how the theatre in Washington would play. We expect our market objectives for this year to be attained within the next few weeks.
  • Within Europe’s markets the acceleration of the out-performance of the risk-value combination remains in evidence. The counterpart is the rediscovery of the investment risk attached to the stocks that have been the relative beneficiaries of the region’s long crisis.
  • We write about the shift in the American perception of Europe, and its deficiencies.

Recommended sector and market asset allocation

The equity bull market is taking another step forward. The investment world never had much doubt how the theatre in Washington would play. The big story since July is the way in which investment leadership in the trans- Atlantic space has passed from “domestic America” to “domestic Europe”. The weakening of the momentum of recovery of domestic America has reinvigorated centre-to-periphery capital flows. Europe’s growth surprise has occurred in a context in which the monetary influence from America has remained favourable. The return of portfolio capital to the depressed economies of the EZ periphery is attaining a scale that must be considered to be a decisive precursor of their return to growth. However, it now seems to us that investor sentiment in respect of America’s recovery is moving too far from optimism to caution.

No change to our recommended portfolio. Within Europe’s markets the acceleration of the out-performance of the risk-value combination remains in evidence. We have emphasised that the counterpart is the re-discovery of the investment risk attached to the stocks that have been the relative beneficiaries of the region’s long crisis. The current reporting season is validating this logic. Secure growth and cyclical growth stocks are coming under pressure, because both are priced for favourable conditions. We expect our market objectives for this year to be attained within the next few weeks. However, “fortissimo” is prelude to “crescendo”. We would recommend that profits be taken early this year.

We write about our most recent visit to America. The decisive change in respect of the euro zone is the realisation that the German-led agenda of gradual, multi-year adjustment of the euro system will probably have the benefit of the time necessary for it to achieve its purposes. In a word, the EZ’s adjustment agenda is becoming plausible.

Weightings and asset allocation for the MSCI Europe Universe



18/10/2013 Neutral weight in MSCI (%) 2-yr beta values
(vs MSCI)
Tactical sector rating Recommended allocation (%)
Consumer Discretionary 9.9 1.1 OW 16
Automobiles & Components 3.0 1.6 OW 5
Consumer Durables & Apparel 2.7 1.2 OW 4
Consumer Services 0.9 0.9 OW 2
Media 1.9 0.8 OW 3
Retailing 1.3 0.9 OW 2
Consumer Staples 14.1 0.5 UW 9
Food & Staples Retailing 1.7 0.8 N 2
Fod Beverage & Tobacco 10.7 0.5 UW 6
Household & Personal Product 1.8 0.5 UW 1
Energy 9.4 1.0 N 9
Financials 21.6 1.5 OW 25
Banks 11.0 1.5 OW 12
Diversified Financials 4.0 1.6 OW 5
Insurance 5.6 1.4 OW 7
Real Estate 1.0 1.1 UW 0
healthcare 12.7 0.5 UW 7
Healthcare Equipment & Services 1.2 0.4 UW 1
Pharmaceuticals & Biotechnology 11.5 0.5 UW 6
Industrials 11.6 1.1 OW 12
Capital Goods 9.0 1.2 OW 10
Commercial Services & Suppy 1.4 0.8 N 1
Transportation 1.2 1.0 N 1
Information Technology 3.1 1.0 OW 4
Software & Services 1.4 0.9 OW 2
Technology & Hardware Equipment 0.9 1.2 OW 1
Semiconducors 0.9 1.0 OW 1
Materials 8.1 1.3 N 8
Telecommunication services 5.5 0.8 OW (N) 7
Utilities 3.9 0.9 UW 3
Exposure to risk
(beta value)
  1.09    
Lquidity ratio   3%    
* The exposure to risk is measured by the weighted average of 2-y betas.
We manage the liquidity ratio within a 0-10% rank.
Source: Kepler Cheuvreux