Despite the dip in April, the scenario of 2010 and 2011 when the US market faded after strong starts is unlikely to repeat itself, says Deutsche Bank Private Wealth Management.

In its latest investment outlook, the German banking giant says that US equities are likely to see slow single-digit growth on the back of continued modest economic growth for the rest of the year.

After having analysed the Citigroup Economic Surprise Index of the US economy, Deutsche has concluded that it is not usual for investor sentiment to become more cautious after a period of strong performance, as in the first quarter.

Deutsche does not exclude the possibility that the presidential election in the US, in which Mitt Romney has emerged as the sole contender against Barack Obama, can “open the door to some uncertainty”. At the same time, the German bank says that the elections might make Americans more domestically focused this year and perhaps less sensitive to events in Europe.

In terms of stock picking, Deutsche highlights that the biggest companies have been the winners in the current economic environment. While eight out of ten US firms reported higher than expected earnings in the opening quarter of this year, if the biggest companies are excluded from the S&P 500, the growth in profitability would be negative instead of an estimated 3 per cent.

On Europe, the firm says that it has known for some time that the period from April to June would be difficult because of elections in France and Greece and a referendum in Ireland on the European fiscal compact. Deutsche believes that the differences between stronger and weaker countries in the eurozone are rising, highlighting the strong performance of German stocks in 2012 while France, Italy and Spain have struggled. Looking forward, as a result of what Deutsche perceives as a structural but slow improvement and the current state of the continent’s corporations mean that there is a “tricky” environment for equities in most of Europe, but that German equities will do relatively well.

The next phase for emerging markets

Besides the US and Germany, Deutsche Bank believes that there is a case for emerging market stocks, but that investors need to be more selective when choosing where to invest. Economic growth can no longer be taken for granted as Asia is looking more and more like the West and issues such as political stability and governance, inflation and the efficient allocation of capital among companies are starting to affect the investment outlook. In other words, all emerging markets in Asia are not equal.

China is an example of an emerging market with a mix of positive and negative factors, but the overall picture is still sound. Deutsche has a similar view on emerging market debt and “better-managed” countries such as China, Malaysia and the Philippines, while taking a more cautious line on India and Indonesia.