Positive US performance

• Driven by the seemingly imminent tax reform, the US did rather well in November, reaching new highs, while Europe struggled somewhat on political concerns, mixed earnings revisions and a somewhat stronger euro.
• The emerging markets underperformed the developed markets, as EM Tech contributed negatively to performance for the first time in 2017, due to global profit-taking on the Technology sector.

Political concerns and strong euro.

European equities, for once, consolidated in November, underperforming the other developed markets.

As there might be a political solution in Germany, and provided the euro does not get too strong, European equities may recover in the coming weeks, as the environment remains very favourable, with an ongoing recovery in the region’s economy supporting the continuous improvement in companies’ profitability.

Like some other global investors, we temporarily took some profit on IT, but still consider that the fundamentals remain strong. We also reduced our Consumer Discretionary exposure, in view of the considerable downside risks in the Luxury Goods sector.

Financials are still under watch: Banks and Insurance are massively over-owned by European investors and are (at least) fairly priced. Regulation risks and margin pressures have not been offset by growth perspectives.

Considering the very distressed levels, we cut back on UK real estate and now overweight the global real estate sector in Europe.

For the rest, we still favour, selectively, some Consumer Staples and Personal Products companies. 

Closer to tax reform – Temporary recovery of the laggers

For once, Staples and Telecoms, traditional laggers in 2017, were – boosted by some rebalancing and tax reform perspectives – the best sectors in November.

We tactically – and temporarily – took profit in the Technology sector, considering the high levels, but remain confident about the fundamentals and might come back after some consolidation. IT will not (or will … but to a lesser extent) benefit from the US tax reform, but still has potential in the longer run.

We maintain our overweight exposure to the Healthcare sector, as underlying trends remain strong, but we are reducing our exposure to Industrials to neutral, as 2019 perspectives might generate some noise and nervousness.

In Emerging Markets, too, Technology consolidates

Emerging markets underperformed due to the global Technology selloff.

This correction mainly affected Taiwan and China.

Geopolitical concerns over North Korea and the Middle East caused investors to keep rotating out of tech stocks, and this hit index heavyweights in Asia.

Moves by the US to recognize Jerusalem as the capital of Israel, despite Middle East allies – including Saudi Arabia and Turkey – warning of the repercussions, added to investor concerns.

But, globally, our convictions remain unchanged:

As many global investors remain underweight, and based on a positive earnings view, we remain supportive for the asset class, despite the possibility of some profit-taking, as we have seen in the tech sector, or driven by the US tax reform. We therefore continue to focus on quality stocks with a strong and sustainable growth profile.