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The equity markets are currently caught between interest rates, growth and the political situation. “Inflation, monetary policy, economic growth, elections and geopolitics will be the dominant themes in the coming months,” says Carsten Gerlinger, Managing Director and Head of Asset Management at Moventum AM. Price swings in one direction or the other are possible and the trend remains unclear. “We are therefore taking a neutral position overall for the time being.”

“We are reducing our biggest regional bet to date – Japan – from overweight to neutral,” explains Gerlinger. The market has benefited from capital outflows from China in recent quarters. However, these have now subsided somewhat and the market entered a consolidation phase at the end of the first quarter. “Japanese equities remain interesting,” says Gerlinger. This is because favourable valuations, the export economy benefiting from the weak yen and corporate governance measures such as share buybacks and high dividends certainly open up price potential. However, the Bank of Japan’s next steps towards a somewhat more restrictive monetary policy could prove to be a burden.

Despite good quarterly results, the rally in the US did not continue for the time being. Wall Street has recently been supported by fewer and fewer tech stocks, with AI fantasies in particular causing valuations to remain high. “Technological advances are having an ongoing impact on productivity in the US,” explains Gerlinger. “Profit expectations in this segment remain high.” The AI exposure continues to speak for the US market. All of these developments taken together mean that Moventum has also reduced its slight US overweight to neutral. Secondary stocks are currently not weighted in the USA. The lower than expected interest rate cuts could weigh on second-line stocks, as they traditionally have higher levels of debt and would therefore be burdened by higher borrowing costs.

Recently, the European stock market has performed encouragingly well. “This obviously reflects the expectation of a cyclical economic recovery,” explains Gerlinger. The first signs of economic stabilization are visible in the early indicators, although the recent decline in the German Ifo business climate index highlights the risks. Overall, European equities remain more favourably valued than US equities and are trading below the historical average. Small and mid-caps in particular have outperformed again for the first time in the past four weeks. The ECB’s first interest rate cut and positive earnings revisions could provide further upside potential. Moventum remains neutrally weighted towards Europe, with a slight underweight in Switzerland and the UK outside the eurozone.

Previously underweighted, emerging markets are now also rated neutral at Moventum. One important reason for this is likely to be the recovery of the Chinese stock market. Despite the continuing problems in the real estate sector, growth forecasts have been revised slightly upwards. “The fiscal policy measures taken to support the economy appear to be working,” says Gerlinger. Among other things, the Chinese government has switched to only supporting individual sectors in a targeted manner. At the same time, consumption is benefiting from tax cuts and the high savings of the Chinese. “Economic growth of up to five percent seems possible,” predicts Gerlinger. However, there is a risk that Chinese exports will increasingly be subject to tariffs. Another reason for upgrading the emerging markets to neutral could be the high demand for commodities, which has a positive effect on emerging countries rich in raw materials. India also remains promising and boasts impressive growth rates. “It will be important that the government remains true to its business-friendly course,” says Gerlinger.