Monthly House Views - European resilience

Renewed geopolitical tensions
The conflict between Israel and Iran is causing renewed uncertainty in an already turbulent geopolitical context. At the moment, volatility on the financial markets has remained contained, reflecting the wait-and-see attitude of investors while the hostilities are expected to have a moderate direct impact on the global economic outlook. Indeed, only the price of oil is showing signs of tension but remains at price levels that are fully absorbable by economies. This new occurrence of risk illustrates the climate of uncertainty that prevails this year. In particular, the United States is expected to experience a certain slowdown in growth, due to the tightening of various aspects of its economic policy (customs tariffs, migration policy in particular). China continues to face weakened domestic demand, despite the stimulus policy, while remaining dynamic in terms of production and exports. In this context, Europe is showing resilience and would benefit from favourable fiscal and monetary support.

European overweight extended to the small caps
We maintain our overweight position in European equity and credit markets, which continue to benefit from important support factors: a favourable rebound in peripheral economies, monetary and fiscal support, as well as valuations that are still attractive. We are increasing our exposure to smaller caps, which benefit from both these support factors and a certain resilience to external shocks;

A balanced strategic position
Beyond this overweight in European markets, we maintain a strategic position that is broadly balanced between equities and bonds. In particular, we maintain a constructive stance on the US equity markets while remaining negative on the dollar and on the US sovereign bond markets, in a context of repricing of the place of US assets in global portfolios.

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