ABN AMRO bullish on IT and communications services sectors

Press release -

ABN AMRO has become more bullish on information technology and communications services. The bank is advising investors to increase their equity holdings in both sectors – from neutral to overweight. At the same time, ABN AMRO is downgrading its recommendation for the consumer goods sector (from neutral to underweight), as it is for the energy sector (from overweight to neutral).

Overall, ABN AMRO Private Banking still prefers equities (neutral) over bonds (underweight). Richard de Groot, its Global Head of Investment Centre, comments: “The IT sector has considerably outperformed the market this past year, with the software & services sub-sector doing even better than the sector as a whole. Businesses continue to invest in digitalisation and the prospects for semi-conductors have improved. It would appear that the IT sector has become less dependent on the economic cycle.

“We’re also more positive on communications services. Despite low economic growth in 2019, we expect this sector to keep doing well, thanks in part to the performances delivered by – predominantly US – players in the interactive media & entertainment sub-sector. This was driven by the fact that commercial operations and entertainment are increasingly shifting to an online environment. We also like communications services, as business in general is digitalising and we see favourable conditions for gaming. Plus the debt position in this sector is lower than that for the equity market as a whole, which offers scope for equity buyback schemes.”

Bearish on consumer goods and energy

ABN AMRO’s analyses show that the consumer goods sector is having a rough time. With consumers being less loyal to specific brands and spending their money in different ways, businesses in this sector are investing more in marketing, e-commerce and product innovation. Given the pressure on margins, combined with high valuations, ABN AMRO recommends that investors reduce their holdings in this sector. The private bank is also less enamoured of the energy sector, as oil prices recovered in 2019 and are now relatively in line with the bank’s forecast for the full year.

Lower position in commodities

ABN AMRO advises investors to reduce their positions in commodities,  but to maintain their positions in gold. Proceeds of the sale can be invested in fixed-income securities with high returns, such as high-yield corporate bonds and emerging market debt in hard currencies. That said, the bank remains underweight in bonds as an asset class. ABN AMRO recommends that investors consider reducing their holdings in inflation-related government bonds and reinvesting the proceeds in investment grade corporate bonds.

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