According to portfolio manager, Kevin O’Nolan, while the improving global growth outlook and low government bond yields provide a ‘Goldilocks’ backdrop for global equities, it is also an unsustainable one; the firm believes that the medium term risks remain underappreciated. And, with valuations looking stretched in many markets, the Fidelity has taken the opportunity presented by recent strength to sell.
The firm is now broadly neutral on the US, UK, Japan, Asia Pacific and emerging markets, underweight Hong Kong and the Eurozone and overweight Australia and Germany.
“Outside of the UK, Brexit most directly impacts Europe ex UK but the market looks oversold on a short term basis. Contagion to other markets is limited for now but may flare up in the coming months,” he said.
Explaining the firm’s preference for Australia and Germany, he said: it likes Australia relative to Hong Kong, because while both are exposed to the slowdown in China, Australia still has the option of easing monetary policy.
In the case of Germany, current ECB monetary policy is being set to support the weakest links in the chain and so is supporting asset prices in the stronger parts, particularly Germany.
At a sectoral level, the firm is neutral on financials and healthcare, underweight utilities, materials, staples and discretionary companies and overweight technology and industrials.
It is also very overweight energy on the back of its belief that the fundamental picture is improving.
“The sector is particularly attractive relative to the Materials sector, which has similar economic drivers but faces headwinds from excess capacity in metal production,” O’Nolan said.
Commodities
At a broader level, it has moved to a neutral position on UK bonds and remains overweight commodities.
“Dollar strength and concerns around excess supply in the oil market have seen commodities correct, but we remain comfortable that the fundamental picture is improving and maintain our overweight,” he said, “the asset class looks attractive particularly in comparison to equities.”
