The fine line between confidence and euphoria

Friday 30 April 2021

Global Investment Views, Equity, Fixed income

Pascal Blanqué
Group Chief Investment Officer,
Amundi

Vincent Mortier
    Deputy Group CIO, 
Amundi

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The fine line between confidence and euphoria  

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Markets, economy and valuations: debate rages on

We believe valuations are excessive in some segments, such as mega-caps, where profit margins are also high. But the key question is whether these high margins justify current valuations? And will these companies be able to grow their top line quickly, while maintaining margins in a context of increased global competition and exhausted consumers? On the other hand, judging the direction of the economy is becoming increasingly difficult.

February GIV
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The strength in the US economy keeps us confident that the Federal Reserve will not begin policy cuts before the end of May, and the European Central Bank will also remain vigilant on disinflation. Sluggish growth expectations going forward mean the emphasis on quality credit and valuations will likely increase. Equities markets are continuing to display acute anomalies relative to the historical norm, with high valuation dispersion between growth and value and an extraordinary concentration in the largest securities. We are prioritizing fundamentals, and exploring strong businesses in Japan and US value sectors.

January 2024 GIV
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Bonds and emerging markets stand out in the Santa rally

The rapid retreat in fixed income yields caused by falling inflation and dovish central banks has affected valuations, but bonds are still a good diversifier as we enter a slowdown. However, we may see some uptick in yields (owing to inflation). The recent equities rally is largely based on easing financial conditions and expectations of a soft or no landing next year. There is a disconnect between valuations in some segments and their earnings potential, which raises risks of deratings.