Many Risks and a silent Winner

For some time now, the economy has been sending warning signals to stock investors. Europe is increasingly sliding towards a recession. The German economy, in particular, faces significant risks. In contrast, the growth in the USA has remained strong, mainly due to the expansive fiscal policy, which is unlikely to continue. “We expect that the deteriorating economic data will eventually weigh on stock markets”, says Gerlinger.

Recently, the US stock market outperformed its European counterpart, and the rise in stock prices was supported by a broader market base. “However, this development contrasts with the weaker macro data, which suggests a recession”, Gerlinger explains. Moreover, higher financing costs and diminished pricing power are increasingly squeezing company margins. “It might only take a spark to shift the mood”, Gerlinger remarks.

In the European stock market, the still positive profit expectations contradict the overall weak economic situation and the anticipated recession. China’s economic weakness, export dependency, and the highly cyclical industry also have negative impacts. “European stocks remain cheaper than US stocks and trade below their historical average”, Gerlinger notes.

Rising interest rates also burden profits, and as bond papers become more attractive, the yield advantage of stocks diminishes. “On the other hand, a potential shift in interest rates favors growth stocks, especially technology stocks, which continue to benefit from the AI hype and are mostly based in the USA”, says Gerlinger.

As a result, Moventum rates the US stock market neutrally at the country level. Europe is slightly underweighted, as are the Emerging Markets, primarily due to economic issues in China. In the long term, Emerging Markets remain appealing. The slight reduction in Europe and emerging countries is being invested in Japan, where Moventum now has a more substantial overweight. “Japan appears to be the ‘silent winner’ in this situation”, Gerlinger justifies the decision. The weak yen supports exports and thus the profits of exporting companies. The stock market also benefits from a strong domestic economy. “And a resurgence of the yen would also have very positive effects for the Euro investor”, Gerlinger adds.

In terms of style, the focus continues to be on technology or Quality Growth and also on Value. “We are increasing the weighting of technology, which should continue to benefit from AI-driven potential”, says Gerlinger. Moreover, the sector could be boosted by the prospect of falling interest rates. “However, some very ambitious valuations are a hindrance.” Defensive values from the healthcare sector, which offer stable growth potential even in economically challenging times, are also of interest. “However, the performance since the beginning of the year has been disappointing”, Gerlinger admits. For Value, Moventum focuses on funds that are broadly diversified across sectors and are more defensively positioned.

Additional information is available at www.moventum.lu