“The moment of prudence”. The ‘monthly report”By Michael Strobaek, global chief investment officer of Credit Suisse and Burkhard Varnholt, chief investment officer – Swiss Universal Bank, in which the global investment strategy of the Swiss bank is also outlined.
We start from the analysis of the stock markets of the last few weeks, during which there has been a strong rebound on the stock markets, thanks to the improvement in investor sentiment compared to depressed levels. This rebound has led the S&P 500, for example, to rise about 15% from its mid-June lows. Credit Suisse analysts then specified that they had maintained the tactical overweight in equities, “as contrarian tactical indicators still suggested an upside from depressed levels.” The recent rally has reduced this upside potential and they fear that market sentiment may have gotten too confident as numerous risks persist, both macroeconomic and geopolitical in nature.
What Credit Suisse analysts are betting on, here is their updated view
“In our last meeting of the Investment Committee – analysts say – we therefore decided to
move equity allocations towards strategic, ie neutral levels ”. Even if the actions could
earn further in the short term, experts prefer to be cautious right now.
In particular, experts from the Swiss investment bank continue to identify opportunities in hard currency bonds from emerging markets, as both sovereign and corporate bonds offer an attractive yield spread.
Within their currently neutral equity allocation, analysts favor the US and Chinese equity markets. The US, in their view, is underpinned by a relatively solid earnings picture, while the preference for China is driven by the country’s fiscal and monetary policy, which provides support. Instead, they show some caution on the Eurozone, as the economic outlook is rather negative and earnings expectations are too optimistic. Experts also predict that Spanish equities (MSCI Spain) will underperform the developed markets benchmark (MSCI World) due to the sharp worsening of the macroeconomic outlook, widening peripheral spreads and
difficulties in terms of public interventions.
II and health, among the sectoral favorites
At the sector level, Credit Suisse continues to expect IT outperformance, thanks to excellent earnings, margin stability, solid cash flow generation and low leverage. Among defensive sectors, experts favor healthcare over consumer staples, as the former offers better fundamentals, such as valuation, and now predict that MSCI World Materials will underperform MSCI World. The materials sector is particularly vulnerable to the current slowdown in global growth and growing recession risks.
From Credit Suisse, I also highlight how the sector’s earnings dynamics are weakening significantly and earnings growth is expected to even be negative in 2023. Furthermore, the indications provided by companies have been rather scarce, suggesting an environment of weak demand. The main risk to our conservative view is a stronger than expected stimulus from China, which would drive up metal and wholesale prices.