Investment Strategies
Julius Baer Warms To Eurozone Equities, Cools On US

The Swiss private bank has increased exposure to European equities and is pulling back from the US market.
Swiss private bank Julius Baer has
increased its exposure to eurozone equities, taking the view that
these assets have further to gain, while it has pulled in its
horns about the US stock market, which it says is in the latter
stages of a bull run.
Christoph Riniker, head of equity strategy research at the
Zurich-listed bank, said it has upgraded eurozone equities to an
overweight position and cut US equities to
underweight.
“Eurozone equities started to outperform the US market in
mid-2016. The relative performance of the two regions in a global
context shows that the US has been a long-term outperformer but
is now confronted with a tiring trend while the eurozone is
starting to pick up from very low levels. We see a number of
reasons for the trend to continue going forward,” the bank
said.
“From a timing perspective, we remain of the opinion that an
eventually benign outcome of the French presidential elections
(an Emmanuel Macron victory) could be an additional positive
trigger for eurozone equities,” it continued.
“Our models suggest that we will finally see positive earnings
growth again in 2017 and 2018 on a global basis. While the model
for the US shows an increase between 6 per cent and 8 per cent,
the eurozone model even results in roughly 2 per cent higher
growth each year. An improving eurozone earnings backdrop also
becomes visible when we look at our earnings indicators (combined
earnings revisions and earnings optimism),” the bank said.
“Not only is earnings growth slightly superior in the eurozone,
but also the valuation levels. The relative price/earnings of the
eurozone to the US is roughly one standard deviation below its
long-term average. As a consequence, the expectedly higher
eurozone index potential is not only fuelled by superior earnings
growth, but also by supportive valuation metrics. The other
factors supporting our view include the dollar influence or the
equity cycle, which is well advanced in the US and clearly
lagging in Europe,” it added.