strategists say they now prefer U.S. equities over their non-American rivals.
The sharp weakening of the dollar over the past month makes U.S. assets more attractive to foreign investors and, at the same time, it creates a growth headwind for non-U.S. equities, say analysts led by Nikolaos Panigirtzoglou.
The dollar index has dropped nearly 4% over the last month.
Another factor they find is that investors have largely covered their shorts on non-U.S. equities.
“The bulk of the previous short base that had opened up during February and March across euro area, U.K. and Japanese stocks appears to have been largely normalized. It is only in emerging markets stocks that there is some remaining short base, around 20% of that opening up during February and March, left to be covered,” they say. Virus news, they add, no longer benefits non-U.S. stocks.
“Different to flu, it looks like the virus does not exhibit a seasonal or other pattern and is rather persistent. This could require persistence and discipline in social distancing without necessarily the need for reimposition of more stringent lockdowns which are economically more costly. On the positive side, the lack of a seasonal pattern by the Covid-19 might also mean that fears of a big second wave coming in winter months in the Northern Hemisphere are exaggerated,” they say.
They say their pro-risk view is supported by the improvement in growth indicators, which have been surprising to the upside in recent months.
Second-quarter earnings reporting season hasn’t only delivered a big upward surprise of close to 17% in terms of earnings-per-share growth in the U.S. and Europe, but also triggered a wave of positive revisions for 12-month forward earnings forecasts, they add.
U.S. S&P 500
has climbed 3% this year, while the MSCI All-Country world index has been steady.
Government bonds, they add, are vulnerable to potential changes in the bond supply/demand balance in the second half of the year.