European equity markets rose slightly in August, in a relatively quiet mode. Clearly, the summer period, as usual, somehow imposed limits on market movements. That said, the overall mood of investors in European equities was more positive than a few months before.

European equity markets rose, on the back of very strong employment numbers in the US. In addition, the decision by the Bank of England to improve its easing policy gave a further boost to all European equity markets, not just those in the UK. A brief period of profit-taking then hit the markets, as investors had to digest disappointing European economic statistics. European stocks then resumed a more positive, albeit quiet, trend, as the euro-zone composite PMI turned out to be stronger than expected and the corporate reporting season also proved reasonable overall, thus having no big impact on European equity markets, broadly speaking.

  • We remain neutral on Financials but have changed some positioning in sub-sectors.
    • We have become positive on Banks, exclusively on retail banking: KBC and ING in the Benelux, mainly due to their pricing power in their respective markets, and Intessa and BBVA in southern Europe, due to their attractive valuations.
    • We have reduced our exposure to Insurance as the rate context is further damaging the situation.
    • We have also become neutral on Div Financials as commercial banking has to revise its business model, with the current situation no longer sustainable (regulation, costs).
  •  We remain, for the time being, neutral on CDI, as this is a pure case-by-case sector.
  •  We remain positive on Health Care, as it remains an innovative segment, with attractive valuations and very important upsides. The coming US presidential elections will increase the risk premium, but this should easily wear off afterwards.
  • We are maintaining our stance on Staples for the moment. Any upgrade will depend on when the Cyclicals run ends.
  • Europe should surprise us in the coming months as the region is expected to outperform the US market. Valuations are more attractive than in the US.
  • Flows are also finally coming to Europe, which is delivering more value than other regions.

 

* Bottom-up sector allocation

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