Equities: Tactically slight UW. Short-term risks prevail

En bref

Equities are on average lower by 8% year-to-date (YTD), triggered by increased central banks’ hawkish stance, higher bond volatility and credit spreads plus higher real yields. The war magnified such headwinds, bringing PEs further down from lofty levels (-18% YTD).

Highlights:

  • Despite the recent risk rebound, headwinds are likely to prevail short term: lingering risks of a war escalation and sanctions are augmented by tougher central banks and increased signs of slowdown. Thus, we decreased the equity exposure to slight underweight (UW), reducing Value and sector cyclicality vs. more defensive Growth names.
  •  Short term, we prefer US and UK vs. EMU despite higher US valuations. EMU is more cyclical, exposed to the Ukraine crisis and more dependent on energy imports. Longer term, a scope remains to be diversified into US equities.
  • Our base scenario of a slowdown – not a global recession – induces us to refrain from endorsing a strong UW on equities. Indeed, even with flat earnings growth in 2022 and lower-than-average PEs, equities may render mid-digit positive returns over 12 months (+5%).
  • Furthermore, the current adjusted earnings yield gap vs. real yields is attractive, and so is the huge gap in cash flow vs Capex. Historically equity returns, while reduced, also tend to outperform bonds in periods of high inflation.

Read the full publication below

Focal Point I Equities: Tactically slight UW. Short-term risks prevail
Picture

© Generali Investments, tous droits réservés. Ce site internet est publié par Generali Investments et est considéré comme une communication marketing et une promotion financière liée aux produits et services des sociétés du groupe Generali suivantes : Generali Asset Management S.p.A. Società di gestione del risparmio, Generali Investments Luxembourg S.A. et Generali Investments Holding S.p.A. (ci-après dénommées ensemble Generali Investments). En outre, le site peut contenir des communications de marketing et de promotion financière de produits et services de sociétés faisant partie de la plate-forme Multi-Boutiques coordonnée par Generali Asset Management S.p.A. Società di gestione del risparmio, et en particulier de Infranity, Sycomore Asset Management, Aperture Investors LLC, Plenisfer Investments SGR, Lumyna Investments, Sosteneo Infrastructure Partners SGR et Generali Real Estate S.p.A. Società di Gestione del Risparmio.