Concerns are growing among investors that US stocks have started hitting excessive valuations after the sustained bull run, and could take a hit when the Federal Reserve starts raising rates.
Bonzon argues that investors should continue to favour US companies due to the effect of the rising dollar on global capital flows.
“Since the beginning of the decade, we have highlighted a rising dollar as one of the main structural trends,” he said. “Identifying a bullish or bearish regime for the dollar is crucial because it radically influences the hierarchy of asset class returns and hence their allocation. The dollar’s rise directly affects the balance sheets of those private and public entities that are exposed to dollar-related refinancing costs.”
“The most susceptible are high-yield US borrowers and emerging countries in deficit,” he continued. The hierarchy of markets should therefore favour US assets that benefit from the return of capital to America, at the expense of international markets, and especially emerging countries in which the adjustment to the changing trend of the dollar will be persistent and difficult.”
“We continue to favour developed equities, especially US and Japan. Emerging equities will continue their underperformance while long-term interest rates will remain low,” Bonzon added. “In this context, the search for yield will continue in the markets for shares and securitised real estate. The commodities sector and some emerging countries will also create interesting opportunities in distressed debt strategies.”
