The outlook for the global economy is now unusually divided between advanced and EM economies. While the US and European economies have continued to grow, the economic prospects of emerging markets have become increasingly challenging. After the tepid early part of the year the US has resumed its position as the engine of the global economy with its firm employment situation and consumers` strengthening purchase power fuelling private consumption. Europe`s consumption-driven recovery has continued at the same time. Yet growing worries about China`s slowing growth, made stronger by the devaluation of its currency, together with the still declining raw material prices have made markets jittery.
OP analysts view the risk sentiment positively and expect that China`s economic growth will decelerate in a controlled manner. The analysts anticipate the first Fed hike in December, but do not believe this will weaken the risk sentiment much. The ECB will be forced to maintain its expansionary policy line at the same time as there is a greater likelihood that the ongoing purchase programme will be expanded. The analysts see upside pressure in US interest rates but expect that euro zone interest rates will remain low. Among the asset classes, the analysts favour especially equities and high yield corporate bonds.
- We are taking equities to an overweight position (prev. neutral). We believe the lower share prices already reflect China`s weakening outlook and therefore see that the valuations of Finnish stocks in particular have become more attractive. The exceptionally modest return outlook for alternative investments together with the globally expansionary central bank measures also speak for equity investment. In Europe and the US, low raw material prices support the economy and consumption, although they do create problems for many raw material economies and raw material-driven sectors, says Equity Strategist Antti Saari.
- We currently favour reasonably valued sectors that gain from the weaker euro, Europe`s export recovery and the improvement of consumers` purchasing power as a result of the decreased raw material prices. In Europe, these include the automotive industry, travel & leisure and financial services. The European construction sector too has potential should the economic recovery continue, though some of this has been priced in. Our favourite Finnish shares are Huhtamäki, Konecranes, Neste, Nordea and Stora Enso. In contrast, we recommend avoiding the shares of Orion, Sanoma, Stockmann, Wärtsilä and YIT, Saari continues.