Credit Suisse reviews equity strategy; upgrades global emerging markets and peripheral Europe
Credit Suisse reviewed its equity strategy Wednesday, upgrading global emerging markets to ‘benchmark’ from ‘underweight’ and peripheral Europe to ‘overweight’ from ‘benchmark.’
It said that excluding the renminbi, emerging market currencies against the US dollar are now the cheapest they have been for 12 years. The bank also noted that GEM equities have already discounted a rise in the Federal Reserve Funds rate over the next year to 1.5% and a modest rise in treasury Inflation-Protected Securities yields.
It added that real bond yields in many GEMs are high and should fall, helping equities to re-rate.
The bank funded two thirds of its upgrade from Continental Europe, for which it has reduced weightings to 17% from 20% overweight, noting that on earnings-based measures, euro-area equities do not look cheap.
In terms of country selection, it highlighted Korea, Taiwan and India, all of which it rates at ‘overweight.’
There are several factors preventing CS from a further upgrade of GEMs. These include the high probability of a hard landing in China on a two to three-year view and the bank’s medium-term bearish view on commodities.
As far as equities in peripheral Europe are concerned, CS said the region is benefiting somewhat from a pause in the US dollar, while relative valuations are attractive and PMI momentum is clearly improving.