>>> Europe
- Europe preferred but sentiment is waning
European equities remain the most preferred region by global investors, however
sentiment dropped to an eight month low in April and sentiment appears to be
waning. Global investors’ intentions to overweight European equities fell to a net
23% overweight down from net 35% in March
- Out of Europe into EM
The intention of global investors to own EM equities improved to a one year high
just as sentiment towards European stocks appears to be waning. The shift in
sentiment towards EM over Europe looks similar to the early stages of the rotation
seen back in 2007. European investors however remain positive on growth keeping
their positioning in favour of cyclical over defensive sectors.
- Sentiment towards EM proxies improving
Improving sentiment towards EM fed into rising positioning in EM proxies in Europe.
EM consumer exposed sectors such as Personal good and Food / Bev saw the
biggest improvement over the month along with Oil and Gas and Basic Resources.
- Higher Growth expectations justify pro-cyclical bias
Growth expectations in Europe improved to a net 68% believing in a stronger
economy, up from 59% in March. Higher growth expectations justify their procyclical
sector bias although sector convictions have dropped to record lows. Autos
(net 16% OW), Energy (14%) and Industrials (11%) are the most preferred sectors
while Retail (32% UW), Utilities (27%) and Food and Beverage (22%) are the least
preferred sector. Of these pair trades our preferred contrarian trade is long Food
and Bev over Autos.
>>> EM & ASIA
>>> EM & ASIA
- GEM allocations improve as China growth bounces
Global investors have reduced their extreme UW position in EM equities. And the
asset class is perceived to be the most undervalued in 13 years (Chart 1). But
global investors are nowhere near an OW position in EM. Stronger Chinese growth
expectations (they bounced in April) required for further allocation to EM stocks.
- GEM investors OW Russia
As China contagion and geopolitical risks fade EM investors move back OW Russia
& China. They remain UW Turkey & Brazil. By sector, GEM investors are OW Tech
& Discretionary and continue to ignore late-cycle cyclicals, supporting Ajay Kapur’s
view that EM growth stocks are over-owned versus value
- Asia investors rotate to Australia
QE withdrawal fear means investors cut ASEAN positioning in April and rotate to
Australia (biggest OW since March 2011) and maintain OW positions in Korea and
Taiwan. Banks hit all-time low in positioning, while Tech and Industrials remain most
loved.
>>> Global
- Bottom line: investors cut “tails” but stay long risk
Investors have "tapered" their extreme Q1 positions in EM & growth stocks; cash
levels remain high; but March/April sell-off has not induced big reductions in tech
exposure, equity exposure & hedge fund leverage.
- We want capex!
62% expect stronger macro next 12 months (though only 23% expect a boom); 58%
want companies to spend more on capex, while % favoring buybacks & M&A fall to
4-year lows; higher capex the necessary condition for lower investor cash levels.
- Cash overweight close to 2-year high
Over 2/3 investors expect higher short-term rates, highest since Jul’2011; investors
overweight cash close to 2-year high (cash levels dipped from 4.8% to 4.6%);
highest % of investors since Jul’2000 thinks stocks “overvalued”…and yet asset
allocation to equities actually rose in April.
- Rotation from UK/EU to EM
Investors saying Value outperforms Growth stocks at 8-year high; and 12-year high
saying US$ is “undervalued”; Chart 1 shows rotation from longs in UK/Europe to
EM/energy, but tech not reduced much. April's "crowded longs" are US HY & EU
periphery debt. On flip-side, pain trade in commodities is to upside.
- Contrarians would…
…long pharma, short consumer discretionary; long telcos, short banks; long Japan,
short US..