Europe takes impulse against the United States by getting the favor of the market after years in ostracism sailing awaits Wall Street. This is seen at least the head of capital Markets Strategies at the Tikehau Capital manager, Raphael Thuinfor whom “much of negativity” is already discounted.
Donald Trump in power, tariff wars, booming war tensions … What are the foundations of the market?
In general they remain positive: the macroeconomic environment is resistant, the disinflation cycle seems to continue, monetary and fiscal stimuli are being applied worldwide, and the fiscal measures of the Trump administration, accompanied by deregulation, could provide greater support to Risk assets. However, the valuations remain high, which contributes to market volatility and the lack of support in tension periods. In any case, we foresee positive performance for risk assets in 2025.
Beyond these factors, what other elements could the market be underestimating?
We will be closely watching China’s economic news. The stimulus measures adopted recently by the authorities are designed to get China out of their economic and deflationary decline and avoid the “Japanese” of the economy. However, structural problems persist, such as a deep crisis of trust, economic imbalances, excessive leverage and an unresolved real estate bubble. Nor is it clear if monetary measures focused on liquidity injections or fiscal measures will completely resolve the situation.
In addition, we remain attentive to the impact of interest rates on real economy and market. On the corporate side, excessive leverage is a sign of stress. In addition, from the governmental point of view and given the high magnitude of budget deficits, economic policies adopted in response to excess public indebtedness will play a crucial role in determining the cost of public debt.
What impact do you think will have the divergence in monetary policy between the Fed and the ECB?
The divergence in inflation – and, consequently, in monetary policy – between Europe and the USA. Uu could become a key issue in 2025. While inflation in the US. UU. It remains resistant, driven by economic growth Stronger, Europe follows a different trajectory, which probably opens the way for more substantial rates cuts by the ECB. On the one hand, the monetary flexibility in Europe could strengthen risk assets and benefit European exporters in a weaker euro. On the other hand, it could also limit capital flows.
How do the market then approach in terms of risk?
Today, maintaining agility – with cash available to display during periods of turbulence in the market – could be a key factor for performance. In other words, with few growth opportunities in a high valuation market, generating excessive returns will depend largely on the strategic time and tactical position.
What do investment optimism attribute in Wall Street and the little interest in Europe?
The negative feeling of investors, infraexposure and historically large discount compared to the US indicate to a favorable entry point to invest in European shares. In this sense, negativity seems to be already reflected to a large extent in prices, and some of the unfavorable factors that affect Europe (such as China, tariffs, growth, Germany) have the potential to change in 2025, even in a way marginal. With such discounted assessments, this could be sufficient to allow good performance of European assets this year.
In which regions and sectors are they positioned at this time?
In our assignments, we maintain a strong preference for fixed income and credit, since we see an attractive opportunity to build income strategies and Carry investing in high quality issuing. We adopt a more cautious posture about actions, recognizing areas of exuberance and relatively high assessments. In the US, we continue to invest in technology companies to capitalize on the mega key trends.
However, we believe that this year could mark an extension of market leadership beyond technology, with opportunities that arise in cyclical actions, small and medium capitalization companies, and banks. In addition, we have rebalance our more portfolios towards Europe, where we believe that much of negativity is already reflected in prices.
For fixed income, is the credit still attractive?
Although credit risk premiums have narrowed on both sides of the Atlantic, the bonds have become an essential asset in any assignment. For the first time in more than ten years (excluding the COVID), investors can ensure an attractive performance, either in Investment Grade either High Yield: Credit has become a performance product, not a differential product. In the segment of High Yield In particular, we believe that the foundations of the emitters are still solid: non -payment rates are still contained and the net margins in Europe maintain comfortable levels. The technical factors have also contributed to the narrowing of risk premiums in the High Yield European since the beginning of the year. In fact, we have seen significant and continuous capital flows towards this kind of assets in the last two years, at a time when the size of the European market of High Yield It is being reduced (from about 500 billion euros in 2021 to 375 billion today). In this sense, building a portfolio exposed to quality issuers with reasonable levels of leverage and yields of between 4% and 7% is now a central strategy. It is not necessary to venture into excessively complex emitters that face, for example, refinancing difficulties to find profitability, since even high quality issuing can now offer attractive yields
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