Asset Allocation: Groupama AM revises its investment perspectives upwards
By Gaëlle Malléjac, Active Management Investment Director
The vigour of the economic recovery, which is simultaneous in the developed countries and concerns all sectors of business, has incited the Groupama Asset Management team to switch to a bullish outlook on the fixed income and equity markets.
The theme of cyclic values, via a “stock-picking” approach, is still preferred, in order to take advantage of an economic situation that is more robust than anticipated.
Global growth could attain 3.3% in 2017, while renewed dynamism can be observed on the microeconomic scale. Business demand and investment are reviving, thereby confirming the improved confidence of the major economic players, which seem to have overcome the “hysteresis” effect of the crisis of 2008.
Under these favourable conditions, the team of Groupama AM has made upward revisions to its targets for fixed income and equity investments. On the fixed income markets, the risk premium tied to political uncertainties, while still perceptible in the short term, should dissipate in the months to come. “We are expecting a global ebbing of the political risk premium after the French and German elections,” explains Gaëlle Malléjac, Active Management Investment Director.In view of the improved growth, the continued rise of inflation and the tightening of monetary policy by the American central bank, we anticipate that the rise in bond yields will continue. “But not to excess. Because although central banks are progressively adjusting their monetary policy, they will remain attentive to the stability of the financial markets, which is one of their priorities,” she predicts.
Bullish perspectives for corporate bonds and equity
Groupama AM is therefore now anticipating a growth of 2.80% by the end of the year for the American 10-year Treasury Note (compared to an initial forecast of 2.60% issued last January) and of 0.90% for the German Bund (compared to an initial forecast of 0.50%). Because of its status as a refuge security, the rate of the German Bund should rise more markedly than that of other European sovereign debts as a result of the expected decline of political risk after the coming key elections. “For example, we estimate that the risk premium associated with French government bonds (OATs) should diminish more significantly in the medium term, since the victory of parties calling into question France’s membership of the European Union is not our central scenario,” explains Gaëlle Malléjac.
With regard to corporate bonds, the valuations of this asset class may seem high in absolute terms, but the risk premiums remain attractive, and the fundamentals are solid, as can be seen by the fall in the default rate. As for the equity markets, Groupama AM estimates their potential appreciation at between 6% and 11% in 2017, depending on their geographical zone, with targets of 5500 points for the CAC 40 index and 2500 points for the S&P 500 by the end of the year
Reinforced positioning on the more cyclic securities
In terms of allocation for the second quarter, Groupama AM is maintaining its preference for risk assets by prioritizing equity over fixed income and, in the fixed income asset classes, giving priority to the credit market over sovereign debt. The equity investment strategy is dominated by the theme of the more cyclic securities. “Our aim is to continue to select the securities that are best positioned to profit from reflation of the economy, by adopting a stock-picking approach.”. For example, the team has reinforced its position on securities having an important leverage effect on the business cycle and on securities associated with investment, such as certain technological securities. The stocks exposed to the American policy in favour of growth and the companies able to take advantage of mergers & acquisitions are also given our vote of confidence.
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