While the IMF published a gloomy macroeconomic outlook earlier this week and macroeconomic bulls among the fund selector community have fast become a minority over the past couple of months, the French buck the trend of growing macroeconomic pessimism. Half of the 24 French fund buyers our researcher interviewed recently have a positive outlook on the wider economy. This is almost double the European average.
Philippe Brossard, chief economist at AG2R Mondiale, the life and pension insurance company, looks to express his macroeconomic optimism by seeking exposure to the world economy’s most important growth driver: the United States.
Brossard is not afraid US equity markets will get embroiled in another violent market correction this year, let alone that a recession is on the cards. “The US economy is relatively stable with grosso modo 2-2.5% GDP growth this year. And we are confident growth will remain solid. That provides good support for equities, I believe.”
European equities: a consensus call
Most French fund buyers nevertheless consider US equities overvalued, and decreasing their allocation further is the main thing on their mind. European equities continue to be seen as a more attractive play however, with a majority of French investors planning to increase their allocation to the asset class in the next 12 months. And Brossard is joining them.
“There is even more potential in European equities than in US stocks. The point of departure in Europe is lower than when you decide to invest in US equities now because valuations are more subdued. Dividend yields at 4-5% are also attractive compared to interest rates,” he says.
Just like in the rest of Europe, increasing exposure to emerging market equities and high yield bonds are also popular asset allocation calls. About four in 10 French fund buyers plan to increase their allocation to both asset classes. This is a strong turnaround compared to last summer, when those intending to decrease exposure outnumbered those planning to increase allocation.