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A new dawn for Europe?



Set against an environment of inflation pressures and pandemic recovery, Europe can offer investors attractive investment opportunities.




The Russia-Ukraine war has impacted the outlook for the European economy in 2022

NATO countries and European leaders have ruled out direct military confrontation due to the risk of escalation between nuclear powers, but the economic consequences of the war will be felt throughout the region.

Eurozone growth is expected to stagnate this year amid high inflation pressure - particularly for energy and food – weighing on both demand and production. At the same time, we should see the ECB remove extraordinary policy measures to curb inflation.

Over the long run, central to the European agenda will be the need to replace its oil and gas imports from Russia and accelerate its energy transition towards renewables, without causing further inflationary pressures.

Additionally, supply-chain bottlenecks inherited from the Covid-19 crisis should come under heightened scrutiny and Europe may look for re-shoring and strategic independence.

In the end, this may lead to a stronger and unified Europe, potentially looking at the prospect of a single defence system.

We recommend a highly selective approach in bonds and equities with a focus on inflation resilience.

 

Key investment themes to look out for

Tactically reduce risk, enhance hedges:
  • Keep well balanced portfolios, with an overall cautious risk allocation, but not structural risk off.
     
  • Increase hedges, through gold and equity/credit protection.
     
  • High flexibility and limited exposure to direction market movement through absolute return strategies.
Stay cautious. To navigate uncertainty and inflation, investors should focus on high-quality value:
  • Near-term caution in Europe due to lower economic and earnings visibility from the Ukraine crisis.
     
  • Value rotation may pause, but should continue in the mid-term. Play with a quality tilt, favouring companies with strong pricing power, ability to maintain earnings growth and preserve margins.
Overall short on duration, cautious on credit:
  • We are defensive on duration, but flexible across the curves: tug of war between rising inflation, upward pressure on yields, and geopolitical tensions.
     
  • Vigilant and more selective in credit: rising liquidity risks and inflation, but strong corporate fundamentals and low defaults.
Tactically reduce risk, enhance hedges:
Tactically reduce risk, enhance hedges:
  • Keep well balanced portfolios, with an overall cautious risk allocation, but not structural risk off.
     
  • Increase hedges, through gold and equity/credit protection.
     
  • High flexibility and limited exposure to direction market movement through absolute return strategies.
Stay cautious. To navigate uncertainty and inflation, investors should focus on high-quality value:
Stay cautious. To navigate uncertainty and inflation, investors should focus on high-quality value:
  • Near-term caution in Europe due to lower economic and earnings visibility from the Ukraine crisis.
     
  • Value rotation may pause, but should continue in the mid-term. Play with a quality tilt, favouring companies with strong pricing power, ability to maintain earnings growth and preserve margins.
Overall short on duration, cautious on credit:
Overall short on duration, cautious on credit:
  • We are defensive on duration, but flexible across the curves: tug of war between rising inflation, upward pressure on yields, and geopolitical tensions.
     
  • Vigilant and more selective in credit: rising liquidity risks and inflation, but strong corporate fundamentals and low defaults.

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European strategic sovereignty must be an investment opportunity

You asked, we answer - January 2022

A new dawn for Europe? Strategies for investing in European assets

This information is exclusively intended for “Professional” investors within the meaning of the MiFID Directive 2004/39/EC of 21 April 2004, and articles 314-4 and following of the General Regulations of the AMF. It is not intended for the general public or for non-professional individual investors within the meaning of all local regulations, or for “US Persons”, as defined in the Securities and Exchange Commission’s “Regulation S” under the 1933 U.S. Securities Act.

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Investing involves risks. The performance of the strategies is not guaranteed. In addition, past performance is not in any way a guarantee or a reliable indicator of current or future performance. Investors may lose all or part of the capital originally invested.

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