Improved macro data coming out of Europe has lead F&C’s head of multi asset Paul Niven to adopt an short-term overweight stance in the region.
As a result of recent negative sentiment pushing European valuations down relative to other regions, Niven feels there are attractive buying opportunities in Europe, explaining the shift away from being underweight in the area.
“Modest positive surprises in growth may benefit European corporates which have high operational leverage and which currently have margins and earnings which still sit considerably below the peak levels seen in the last cycle,” he says.
Meanwhile Niven is maintaining the multi-asset teams overweight stance in Japan, although he says he is mindful of potential further weakness in the yen.
He notes the surprise increase in monetary stimulus announced by the Bank of Japan in October sent the yen tumbling and sent the Nikkei 225 index to its highest level since 2007.
As such despite the recent poor GDP numbers, Niven says a combination of a the weaker yen and falling commodity prices, together with more aggressive stimulus, is expected to benefit those Japanese companies that have recently posted strong profits growth.
He adds: “Any uncertainty which does creep in prior to the elections is unlikely to last long – timescales are short and markets are likely to take renewed confidence from a reconfirmation of Abe’s leadership – the most probable outcome.”
Meanwhile as government bond yields have fallen and not reacted to improved macro data, Niven says the team has moved further underweight in developed and global sovereign bonds.
In addition it has reduced its overweight positions in global high yield and emerging market debt and moved from neutral to positive on investment grade credit as junk bond credit spreads credit spreads continued to widen during the equity market recovery of the past two months.
“The timing, and impact of US interest rate hikes in 2015 remains the big question, as macro data improves but looser monetary policies in major economies other than the US cloud a clear path forward,” he says.
“Equities are likely to remain our preferred asset class through to at least the start of 2015.”