- European equities offer a dividend yield of around 4%.
- The current environment requires active and professional management to maximize investment opportunities.
- Despite the trade tensions between the United States and China, the geopolitical risks and the withdrawal of stimuli by central banks, the good economic outlook, together with the attractive valuation levels of the European stock exchange, indicate that equities could have potential for revaluation.
- Estimates point to a global economic growth of 3.5% by 2019 and an increase in corporate profits of 9%.
Santander Wealth Management , which brings together Banco Santander’s private banking and asset management business, estimates that in 2019 global growth will register a slowdown, but moderate, and suggests that the expansionary cycle will continue and remain solid.
In the report Navigating the cycle change , jointly prepared by Santander Private Banking and Santander Asset Management, the division led by Víctor Matarranz indicates that world economic growth will register levels of 3.5% next year, only three tenths below 2018. “The United States and Europe would grow around their potential and China is reacting with a broad stimulus program to continue growing above 6%,” he said in the report’s letter of introduction.
These perspectives are based on four factors: the absence of critical macroeconomic imbalances, the favorable financial situation of households and businesses, the absence of inflationary pressures and expansionary fiscal policies. All of this, together with interest rates at still low levels, expectations of 9% profit growth and attractive valuations of the stock markets, should support stock markets and generate investment opportunities.
“The investment watch described above tells us that, for this moment of the economic cycle, the ideal asset in terms of the profitability-risk binomial would be the stock exchanges of developed countries,” the report states. However, it warns of the existence of several economic, commercial and geopolitical risks that must be monitored. First, the rate increases by the Federal Reserve, which represent a source of monetary tension. Monetary policies will remain accommodative, although their support for the economic impulse will be less and it is expected that the adjustment of the main central banks will not be very marked. In the United States, an additional increase in interest rates of 25 basis points is expected this month and three more movements to the upside, of another 25 basis points in each case, for next year.
In this environment, in which episodes of volatility could shake markets again, it is necessary, more than ever, an active and professional management to maximize investment opportunities. In this line, and to take advantage of the different changes in the winds of the economic cycle, the keys will be a more diversified and dynamic asset allocation than in a more stable cycle context; focus on the fundamentals to actively manage the level of risk in the portfolios; show prudence in the selection of assets, based on a constructive global positioning; and pay special attention to the management of credit risk and maximum diversification in geographies, sectors and issuers.
By type of asset, Santander Wealth Management recommends taking advantage of the increase in the yield premium that investment grade corporate bond has experienced (debt with higher credit quality), avoiding the companies that have increased their indebtedness the most. Secondly, it points to the attractiveness of floating bonds in Europe, an investment alternative in times of increased market volatility and one of the most beneficial bets to take advantage of the current upward trend in interest rates.
Regarding the stock markets, it points out that the European companies, with a dividend yield of close to 4%, are the most attractive asset for fundamentals, with special emphasis on cyclical sectors such as technology, industry and energy, which show growth expectations of double profit. digit. In the United States, it maintains a neutral position in equities and advises a rotation towards more defensive sectors such as stable consumption and health.
Regarding currencies, the firm considers that the US dollar would continue to appreciate in the first part of the year, but the trend could change from the spring. “Dollar positions could act as a refuge asset,” the report said. “As of the second quarter, the trend in the euro-dollar cross could change towards its equilibrium level,” he adds.