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In the months to come, the Ukraine war and the energy crisis are set to leave their marks on the global economy. Economic output is expected to contract temporarily in Europe and in the US. While inflation rates are expected to decline slowly, they will remain entirely too high for the foreseeable future. Central banks are countering this scenario with rising interest rates, although the pace of rate hikes may be curbed going forward.

“In the past few weeks we have seen how quickly favourites can change on the international stock markets, even if not necessarily comprehensible in terms of fundamentals or sentiment”, says Gerlinger. It is for this reason that Moventum is continuing its allocation with minor adjustments. “We are slightly increasing the weighting in Euroland at country level within Europe, at the expense of weighting in the UK and Switzerland. Overall, we will thus remain underweight in Europe”, Gerlinger adds. Although European equities are more favourably valued than US equities, Europe is suffering more from energy prices and its strongly cyclical industry.

In contrast, there is a slight overweight of US equities. Recently, the US equity market has been the under-performer in an international comparison where value outperformed the tech sector. The current uncertainty argues for balanced positioning between value and growth. “We also remain overweight in Japan”, says Gerlinger, “because the country’s economic growth is expected to be relatively strong by international standards.” Additionally, the weak yen is positively impacting exports.

The emerging markets are presenting a mixed image: while Latin America is benefitting from its commodity wealth, the prospect of a recession is already depressing prices. “Emerging equity markets will remain promising in the long term, but in the short term there is a bit more uncertainty”, Gerlinger points out. “On balance, we will remain somewhat underweight in emerging markets.”

At sector level, the weighting of Financials is being increased to neutral as rising interest rates are supporting the sector. Despite a significant reduction, the overweight in Healthcare will remain in place as that defensive sector offers stable potential for growth. Additional opportunities are arising from takeover fantasies and the long-term mega-trend of digitalisation. Communication Services, Utilities and Infrastructure are also promising. “Companies are benefitting from increasing government spending, specifically in renewable energies”, Gerlinger explains. The technology sector, on the other hand, has recently experienced a slowdown in earnings growth, and the recession sword of Damocles keeps hanging over the commodities sector.

Additional information is available at www.moventum.lu