Monthly House Views - Make Europe Investable Again

Tailwinds beat uncertainty... 
European equity markets are off to a strong start this year. This improvement contrasts with the global political uncertainty and the fragility of economic activity in the region. It can be explained by the return of investors - particularly foreign investors - who had largely abandoned the region since the start of the war in Ukraine. They appear to be lured by attractive valuations and the anticipation of supportive factors that could last. Firstly, listed European companies are benefiting from the fall in the euro and the buoyant economic activity in southern Europe and the United States, to which they are exposed. Secondly, interest rates in the euro area are moving further out of sync with US rates. Finally, the US offensive on trade policy could encourage European unity on certain projects, such as defence, artificial intelligence and energy. The German elections on 23 February could further reinforce this trend. .
 
... which lead us to increase our overexposure to European equity markets 
We are maintaining our overweight in the equity markets, increasing our exposure to European markets to benefit from the favourable momentum. We favour companies and sectors exposed to US activity, but with limited risks in terms of trade restrictions. We also remain overweight to the US equity market, favouring sectors and styles that would benefit from favourable industrial policy and withstand the high-interest rate environment. On the other hand, we remain underweight to emerging equity markets, with China specifically targeted by trade restrictions

 
Overweight dollar and yen 
The desynchronisation of monetary policies is being confirmed, with a wait-and-see Federal Reserve on the one hand, a Bank of Japan (finally) raising its rates and central banks in Europe continuing to lower theirs. The dollar and yen are likely to benefit from these more favourable interest rate trends. While retaining a clear strategic focus, we are maintaining a highly diversified allocation, with continued exposure to the bond markets (European credit in particular) and gold. In the current political and geopolitical climate, market volatility will remain the order of the day.

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