The political risk premium has abated amid highly bullish economic indicators

The eurozone is currently the most attractive market.

European PMI indices remain bullish for European equities and the ratio of upgrades vs downgrades is at its highest level in 5 years.

Our core strategy, based on the European recovery, focuses on domestic eurozone cyclical stocks and, as the market appears to have also adopted our point of view since the French elections, we have already taken partial profits:

• Our portfolios remain overweighed on healthcare stocks. Although we took partial profits in the sector last month, our residual overweight seems to be bearing fruit.
• We are also overweighed on retail banks (vs insurance groups). Retail banks were the biggest gainers as political risk abated and the associated premiums narrowed, and we are maintaining this strategy as the trend may continue.
• We are also overweighed on a number of cyclicals names, such as consumer services, although we have a neutral view of the industry. We have maintained positions in certain stocks, including Vinci, Siemens and Schneider, which may benefit from clearer visibility following the French elections and healthy eurozone macro indicators.
• Lastly, we believe that the technology sector is a sound investment for the medium term.
• We are maintaining a cautious view of the energy sector. The oil price remains range bound and depends chiefly upon OPEC decisions. In the long term, the sector is unprofitable compared to its cost of capital.
• We are continuing to steer clear of telecoms and utilities, which should remain under pressure in response to the underlying trend in interest rates.