Focus on non-US equities

With global equities rising 7% in 1Q2017, valuations appear somewhat high on a historical basis. However, the bulk of this overvaluation is due to elevated multiples in the US, where at 22x trailing earnings, valuations have only been at such a level during the tech bubble of 2000-01.

Sectorally, we continue to see opportunities in US technology. While in healthcare, one of our favourite sectors, the absence of healthcare reform in the US is potentially a headwind to a more sustained re-rating of earnings power in the sector. In the near term, however, we retain positions in the sector expecting continued outperformance in the months ahead.

In Emerging Markets, valuations remain short of the cyclical highs seen in the 2003-07 global expansion. With earnings upgrades continuing apace and the strong USD headwind fading in EM, we see further upside looking ahead. Economic and earnings momentum in Asia has resulted in a pivot in our preferences towards the Asian EM region.

We have become less negative on Eurozone equities in light of the robust recovery in the single currency area. While valuations, especially versus the US remain fair to modestly cheap, we see more meaningful prospects of earnings surprises as the primary driver to returns on the continent. That said, the 8% rally in Eurozone equities since January suggests that the prospect of a populist outcome in the upcoming French elections is still relatively poorly priced in Eurozone equities.

As a result, we have taken the opportunity to tilt our European equity exposure towards partially capital protected positions through the French election season, allowing us to maintain exposure to the ongoing cyclical recovery while protecting against near-term risks surrounding the political landscape in Europe.

Luca Trabattoni – Country Head Italy and Mediterranean Countries – Union Bancaire Privée (UBP)