ABN AMRO: multi-engine growth leaves room for higher equity prices

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While the US had led the recovery of the world economy, other growth engines, such as Europe, are now starting up, writes ABN AMRO Private Banking in its most recent Investment Outlook – Running on more engines – published today. Against this background, the private bank remains upbeat about equities, with a preference for Europe and emerging Asia.

Didier Duret, Chief Investment Officer of ABN AMRO Private Banking, comments: “Corporate results for the first quarter mostly confirmed an encouraging outlook, causing analysts to upgrade their earnings forecasts and equity markets to continue their upward momentum. There is also a virtuous cycle between an improved global economy, receding political risks and a regime of low market volatility. We expect around 3.5% growth of the global economy for the rest of 2017 and 2018.”

Keen on emerging markets

While its sector positioning continues to favour the IT, consumer discretionary and industrials sectors, ABN AMRO Private Banking recently made changes to its regional breakdown. The private bank has become keener on emerging markets (emerging Asia, in fact), as these should enjoy greater economic recovery. This is also true for Europe as a region, where the bank retains its overweighting. Compared with emerging Asia and Europe, the United States is further along in its cycle and more expensive. What’s more, the weakening US dollar benefits emerging markets.

Active duration policy

ABN AMRO Private Banking continues to look for a further rise in interest rates, as more central banks start tapering their QE programmes and economies improve. And so, the private bank will keep in place its sizeable bond underweighting. Meanwhile, it also retains its relatively large underweighting of government bonds, with a low duration policy. Following the French presidential elections, it reduced its stake in Italian government paper and bought inflation-linked bonds (ILB) instead. “ILB are good to own as insurance against the future rise of inflation " Duret observes.

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