It is retaining its underweight on European equities, anticipates underperformance by Cyclicals and is downgrading Basic Resources to underweight.
Risk assets are expected to remain fully valued, while peripheral equities will fall in absolute terms.
Robert Quinn, chief European equity strategist at S&P Capital IQ, said: “Old economy stocks have traditionally had the highest correlation to composite Purchasing Managers’ Indexes and we are now underweight both Chemicals and Basic Resources.
“We hold Industrial Goods and Services at market weight as the long-cycle names continue to garner impressive order intake from non-European economies and hence are displaying less negative earnings revisions.”
Country-specific predictions
Italy is said to be stuck in a perennial slump as a result of the election and a tough tax regime which leaves very little room for manoeuvre, although the near-term growth and budget deficit targets recently published by the outgoing government are perceived to be less challenging.
Spain continues to languish, with retail sales falling for the 32nd consecutive month and falling 7.9% year on year in February. Real disposable incomes have also fallen, while house prices fell 12.8% year-on-year in the fourth quarter, which is a 31% decline from the peak.
In Germany half of the August upturn has been undone, while French consumer confidence fell sharply in March, reversing gains made since November. UK consumer spending is likely to be muted following the weak CBI Distributive Trades survey in March.
Quinn said: “The balance of retailers reporting sales that were up on the previous year retreated to a six-month low of 0% this month, from 8% and 17% in the two prior months.”
