European equities: Small-cap and growth-stock rebound
European equities performed well, according to numerous economic data and hopes of better political news regarding Brexit and the trade war. Small caps and Growth rebounded throughout the month while Value underperformed. Earnings and sales surprises were positive in Europe in most sectors. We continue to see strong equity inflows in Europe, with European PMIs stabilizing. Health Care, Industrials and Information Technology outperformed the market, while Energy continued to lag.
We continued to position our portfolios towards more Value names, as they are rather cheap, with potential upside in the short term. We are keeping our cyclical bias and overweights on the Retail Banking and Automobile sectors while remaining underweight on Telecom, Utilities and Healthcare.
Any further positive outcome to the Brexit negotiations or the US-China trade talks or decisions from future members of the ECB and the European Commission could be potential short-term supportive factors for the region, particularly for the Value style.
US equities: Solid month
Global stock markets ended the month of November at a record high. Equities fluctuated throughout the month amid trade headlines, renewed Hong Kong protests and important economic figures. US-China trade negotiations continued to lead the market this month.
US equities had a solid month in November, with Health Care, Information Technology and Communication Services performing well while Utilities and Energy underperformed.
We continue to see strong results in Health Care, which clearly outperformed the broader equity market, with the 1M change in 12M forward EPS remaining positive. Information Technology, driven mainly by positive earnings and sales surprises, continued to grow. Energy continued to underperform, based on poor earnings revisions. The 2020 guidance for industrials indicated strong EPS growth, based on a potential trade deal.
We have kept our negative stance on Energy, based on poor earnings revisions while still positive on Information Technology (mainly hardware and semiconductors). We are keeping our overweight Health Care as the sector continues to deliver strong results.
Emerging equities: Investors take some profits after a strong October rally
Emerging Markets underperformed global markets in November.
Despite continued fund inflows into the asset class and a positive developed market performance, EM equity investors took some profits after a strong October rally. Ongoing uncertainty over the potential ‘phase 1’ trade deal between the US and China – on top of the unrest and protests in HK and Latin America, a stronger dollar, and oil and gold price pressure – did not help performance. Brazil, especially, had a tough time, as the release of left-wing ex-president Lula from jail and disappointing oil exploration auctions made investors take profit. Erdogan’s Lira support efforts made Emerging Markets the only market in positive territory. Trade talks, a weakening economy, the end of the November MSCI index review (increase in China A-shares) and the expected listing of Alibaba in HK were the main drivers of a flat China market.
We have kept our neutral positions in Brazil and Taiwan, with a slightly positive stance towards value names. We have also kept our overweight in China while reducing our positions in ASEAN to underweight. We have kept, too, our overweight position in IT (mainly towards hardware & semiconductors) while reducing our defensive exposure through Consumer Staples by turning underweight.
