BofAML: Es tiempo de comprar (European Equity Strategy)

Redacción - Viernes, 02 de Octubre

• 
• 
• 
• 
• • 
  • 
  • 

Key takeaways. Equity markets have been hit by a number of shocks in Q3 but are now oversold and sentiment/positioning is very cautious. With an ongoing recovery in the US and Europe and valuations cheap we see the most likely path of markets to the upside.·   EM/Commodity related sectors have been crushed but the elastic is getting stretched. We continue to favour Banks and Tech.

Equity markets were battered in Q3 by a series of shocks

The third quarter of 2015 will go down as one to forget for many investors. European equity markets were first hit by Greece and then just as they had recovered from that by the fallout from the China devaluation. Throw in the VW emissions scandal and concerns about Glencore being at risk of default and it was difficult situation for markets. From a peak of up 20% on the year, the Stoxx 600 closed Q3 just 1.5% year to date.

We still see equity markets higher by year end

Our call post the Fed was for markets to follow the taper tantrum playbook, with an initial wobble followed by recovery. We still see this as the most likely outcome. Investor positioning is cautious, confidence is rock bottom and some of the sentiment is becoming extreme (viz fears over the credit worthiness of Glencore and VW). Those are normally contrarian signals. Moreover, economic data (particularly in Europe) remains robust, valuations remain cheap and equities offer an attractive yield.

Markets will still be choppy and risks are real

We are far from out of the woods just yet. Our technical analyst remains concerned about a retest of recent lows and there are risks of shocks from EM, where Brazil (default risk) and China (currency/macro risk) remain high on the watch list. Any signs of faltering growth in the US and Europe will likely be seized on by bears. Manufacturing in the US looks the most likely catalyst there (watch today's ISM).

But this is not 2008, although it might be a 1998 repeat

We have been arguing that this is a growth shock a la 1998 which the developed world will ride out. The recent deterioration in credit markets either side of the Atlantic is a concern but we think this is not a repeat of 2008 when credit market problems were a lead indicator of a major economic deterioration.

EM/Commodity sectors starting to stretch the elastic

We have been underweight Autos and Basic Resources primarily on China concerns. Together with the troubles at VW and Glencore specifically the sectors have underperformed sharply. This is now starting to get stretched in our view, although there are considerable structural challenges now in both industries. Upside wise we prefer Banks still, where we think market concerns are overdone, Tech and Media.

 

 

See attached report for further information. 

[Volver]