ING Investment Management has downgraded its allocation towards Europe due to the “rapid” weakening of data from the region.
Data has been poor from Europe recently – such as German industrial production figures – and recent GDP numbers from eurozone nations show the recovery has ground to a halt in the second quarter.
As a result ING IM’s view of European equities has been downgraded from a small overweight to a small underweight.
ING IM senior multi-asset strategist Patrick Moonen says: “The downgrade does not imply that all of a sudden we have turned bearish on Europe. The relative valuation argument is still intact.
“Europe’s equity risk premium is the highest in the developed world and recently, it has risen even further. Taking into account it is at an early stage in its earnings cycle and the ECB is prepared to do ‘whatever it takes’, the market will be driven by two factors: higher earnings and higher valuations.”
Elsewhere ING IM has upgraded its view of US equities, from neutral to a small overweight.
Moonen adds: ”Here, the market performance must come entirely from earnings growth. The strong second quarter earnings season in the US reveals that companies are delivering the needed growth to underpin the market.”