united kingdomen
Gradually preparing for a rotation

Gradually preparing for a rotation

17-07-2020 | Insight
In our last quarterly, we expected markets of countries resuming economic activity earlier than others to fare better. These countries included China, Taiwan and South Korea. Since the end of the first quarter, and at the time of writing, the performance of the CSI 300, Kospi and TWSE indices all beat the MSCI World and S&P 500 indices. Now, we add Europe.
  • Fabiana Fedeli
    Fabiana
    Fedeli
    Global Head of Fundamental Equities
  • Wim-Hein  Pals
    Wim-Hein
    Pals
    Head of Emerging Markets team
  • Jan Keuppens
    Jan
    Keuppens
    Senior portfolio manager

Speed read

  • DM outlook upgraded to neutral, EM neutral outlook unchanged
  • We now expect a U-shaped economic recovery
  • We favor countries that have been dealing with Covid-19 more effectively

We also highlighted the importance of being selective from an individual stock viewpoint, as once the earnings impact became clear, we would start being able to distinguish the winners from the losers. We still stand by those statements, and were not surprised by the performance concentration that we saw over the last three months.

Stay informed on our latest insights with monthly mail updates
Stay informed on our latest insights with monthly mail updates
Subscribe

Expect more of the same, but with less tempo

So, what comes next? More of the same, but with less tempo. A cooldown, if not a pullback, of equity markets is now overdue. The tech-savvy stocks that have driven the upside in both developed and emerging markets may not plummet, but it is difficult to see them continuing to perform at the same pace. The next stage of market upside will have to come from the more cyclical stocks. These, however, need better visibility on an economic pickup than what we have now.

A lot will depend on how Covid-19 continues to spread. Some countries that seemed to be over their contagion peaks are now back to seeing cases rise, with the US being the most glaring example. How these new increases will be managed will have a strong impact on the shape of the global economy. We are clearly not in a V-shaped recovery. For now, we believe we are looking more at a ’U’.

Until the virus is under control, from a regional perspective we continue to favor countries that have been dealing more effectively with the outbreak. This means looking at North Asia and Europe. From a stock selection perspective, and given the extreme valuation differentials, our teams have been taking profit from some of the high-flying compounders and have added to cyclicals and stocks that had seen adverse price action, but still have solid fundamentals.

Subjects related to this article are:
Logo

Disclaimer

Please read this important information before proceeding further. It contains legal and regulatory notices relevant to the information contained on this website.

The information contained in the Website is NOT FOR RETAIL CLIENTS - The information contained in the Website is solely intended for professional investors, defined as investors which (1) qualify as professional clients within the meaning of the Markets in Financial Instruments Directive (MiFID), (2) have requested to be treated as professional clients within the meaning of the MiFID or (3) are authorized to receive such information under any other applicable laws. The value of the investments may fluctuate. Past performance is no guarantee of future results. Investors may not get back the amount originally invested. Neither Robeco Institutional Asset Management B.V. nor any of its affiliates guarantees the performance or the future returns of any investments. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency.

In the UK, Robeco Institutional Asset Management B.V. (“ROBECO”) only markets its funds to institutional clients and professional investors. Private investors seeking information about ROBECO should visit our corporate website www.robeco.com or contact their financial adviser. ROBECO will not be liable for any damages or losses suffered by private investors accessing these areas.

In the UK, ROBECO Funds has marketing approval for the funds listed on this website, all of which are UCITS funds. ROBECO is authorized by the AFM and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request.

Many of the protections provided by the United Kingdom regulatory framework may not apply to investments in ROBECO Funds, including access to the Financial Services Compensation Scheme and the Financial Ombudsman Service. No representation, warranty or undertaking is given as to the accuracy or completeness of the information on this website.

If you are not an institutional client or professional investor you should therefore not proceed. By proceeding please note that we will be treating you as a professional client for regulatory purposes and you agree to be bound by our terms and conditions.

If you do not accept these terms and conditions, as well as the terms of use of the website, please do not continue to use or access any pages on this website.

I Disagree