Our Investment Strategy Recommendations For June
A major change in our investment strategy is that we step up the profit-taking underway since March and become negative on equity markets in the short term. The political risks have increased, and the markets seem too complacent (in our view) about the trade tensions between China and the United States, heightened risks of a hard Brexit, and the unclear political situation in Europe following the European elections, particularly in Italy. Volatility is set to increase at the end of the stock market cycle.
We turn neutral on stock markets in the long term as we consider that the risk ratio/upside is less favourable. If everything goes well, according to our base-case scenario (moderate economic growth including in the eurozone, profit growth in 2019 and 2020, historically very low interest rates and with no future shocks as inflation remains low), stock markets will return to their highs of the year. On the other hand, the risk of a fall will be greater if one of these risks materialises.
Our positive regional equity recommendations remain unchanged for mature markets, the eurozone and Japan. We are neutral on the United States, United Kingdom and Switzerland. On the other hand, we are becoming more defensive in country terms; we downgrade Emerging Markets to neutral, and above all China, which is very sensitive to trade issues. We moved India to positive after the very favourable general election for the incumbent prime minister. Sector-wise, we turn negative on industrial stocks and neutral on European financials. We like defensive sectors, especially Health Care, Real Estate, and in Europe, Energy and Telecom Equipment.