Um how does that rally sustain itself When you do Have higher yields you did not have an Ecb Over the last two weeks buying bonds in Their pep program What's the case for european equities if Any It's a really tough one to make um we we Are i think concerned about european Equities About european assets in general and you Know we look at the macro backdrop and It's not performing as well as i think Many people were hoping Uh the vaccine rollout has been Disappointingly slow and doesn't really Show many signs of acceleration In the same way that we've been uh Seeing in many other countries And then as you said you know that the Tightening in u.s financial conditions Is also Meaning that european conditions are Also tightening which europe Simply cannot cannot afford it doesn't Have the same kind of fiscal stimulus Package that the us is about to enjoy So i think we do have um a lot of Hesitation with regards to european Equities right now See but what about internationally Focused european invest In investments um
You have a cheaper euro right we're at 118 today You've got a global economy that is Picking up quite nicely anybody with Exposure to the u.s economy Should benefit in terms of the Translation effect uh you've got Oil prices that are up you've got a Steep yield curve which also should Favor European banks isn't there quite a case To be made actually for individual Sectors to outperform here Yeah i think i think that is key so i Think from a sectoral perspective we do Think that european banks will Outperform you know that That steepening yield curve is very Favorable For the banking sector but i think Overall you know if we have to pick On a relative basis which region we want To be having that significant exposure To Unfortunately at the moment it's not Europe i think it's still that the u.s Is looking at the outperformer And really when we look at international Equities more generally speaking Um although at the beginning of this Year it was all too playful for International equities The truth is that the us is really Outperforming everyone it looks like
It's going to be the strongest performer For for 2021. so actually a lot of the other Regions which are looking pretty good at The beginning of the year are starting To pale in comparison to the us But if you're looking at tightening Financial conditions why wouldn't that Be the case for the u.s The dollar gets stronger yields rise etc When does that actually hurt No and i i agree i mean i think that's a Really is a key question for investors Is At what point does that rise in yields Become too difficult i think within The us there is a real case for rotation Uh you know we need to be looking at Value stocks we need to be looking at More cyclicals um You know the ones that have done Particularly well are starting to Struggle Uh but you know they do have the Stronger economic outlook that u.s Fiscal stimulus package is so It's so significant that it's really That's a reason why you've seen So many growth forecasts be upgraded in The last few weeks You know we um we started with our Baseline scenario of a 4.8 percent Growth rate for the u.s We've shifted that up to the six percent
Level you know many others haven't i Think that's down to the fiscal stimulus That's the edge that the u.s has That unfortunately europe just doesn't See but what do you do With chinese stocks what do you do with Emerging markets more broadly Uh em currency is starting to roll over In a fairly significant way as the Dollar gains traction Uh chinese stocks i think are down like The csi's down Circa 15 over the last few days we're Starting to see Some real money moving around in the Emerging markets i'm assuming that it's Flooding back Towards the united states how tough a Trade is this going to be particularly For those china stocks Yeah uh you know and this is i guess What i'm regards to when i talk about International stocks There was you know the consensus trade Was that emerging markets would have a Fantastic 2021. Um and that was really reliant on this Idea that the dollar would be Uh that much weaker through 2021. it's Not the case And i think the reason is again it's a U.s growth outperformance It's meaning that the downside for the Dollar is extremely quite limited at the
Moment we We think that there is at least a case To be made potentially for a stronger Dollar Which means that for em currencies um It's not quite such a pretty stories as It began Uh i can say that for the for the china Side the Growth is a little bit disappointing and Actually looks like it could be an Underperformer for this year for the First time in quite a long time But aren't the two stories linked Because of the ideas you like us Equities we get almost a two trillion Dollar stimulus we're gonna go out and Buy stuff a lot of that stuff is still Made in china Or you need components from china to Make it i mean Why wouldn't that rising tide then lift All boats I think it right it so let me get it Straight it's It's it is certainly positive for Everywhere right the u.s Economy as the largest economy which Depending which measure you want to use Is clearly going to lift global growth It's down to that fiscal stimulus Package um you know their covered Vaccine Rollout has also been very impressive so
We're looking at a reopening in the u.s Economy which is actually already Underway Um and this is far ahead of most other Countries so we do need to consider that That that change now The one element here which is you know Potentially the game changes of course That rising yields At what point do do equities start to Feel really suffocated Um i don't think we're there yet and a Lot has to be playful with the With the fomc meeting next week um but We do Think that that you know equities will Outperform in a strong growth Environment Seema um as as yields go higher tech is Suffering Is there a point and at what point does It come where that trade has gone too Far These are particularly with the big tech Companies Hugely hugely um positive companies when It comes to earnings Uh they have an esg factor attached to Them in many cases I at what point do you think this this Kind of tech selling Period is going to come to an end You know this is i i'd say i mean this Is the main question that we're getting
At the moment Uh we have been very pro tech uh for a Long period and we have come into this You know looking at as it's a secular Trade It's something which is has got so much Growth potential These are strong balance sheets Companies uh with a lot of potential Going forward as well but this is a Difficult environment for them Now once we've had that peak in bond Deals which we do think will come In the relatively near future but once That comes then tech again looks like a Bit of a buy But there's no denying that this is a Very very difficult um period for This sector which is clearly Outperformed over the last year
