Industrials

Our negative stance on European growth and assets is not devoid of risks. To gauge whether these risks warrant upgrading our growth outlook, we monitor Sweden closely. So, what is the current message from this Nordic economy?

Favor Health Care and Utilities for defensive positioning amid economic slowdown and volatility as the presidential election approaches. A Republican Sweep favors Real Estate and Materials, while the second most likely outcome, Democrat gridlock, favors Health Care, and Information Technology.

As Trump’s victory odds rise, the underperformance of European equities deepens. How negative would a global trade war be for European assets?

Concerns about the global economy have shifted from sticky inflation to faltering growth. Tight monetary policy is finally starting to bite. We suggest increasing portfolio defensiveness.

The issue of "industrial overcapacity" in China may be a misconception. Overcapacity in the old-economy sectors has largely diminished, while China's dominance in the global green-energy market reflects its technological advancements and innovations.

We close our overweights to Energy and Aerospace & Defense. The macroeconomic backdrop is deteriorating for Energy. As for A&D, the good news is already priced in.

Generative AI-related rally resumed in May. Much of the recent market gains are down to excess liquidity that was begotten by the massive pandemic stimulus, creating a dichotomy between multiple economic challenges and exuberant markets. The Fed is unlikely to step in to prevent the bubble as it is currently more worried about the near-term downside for growth than financial stability.