Kirk explained: “Unless we get a disturbing catalyst, the market looks set to continue the trend we have seen so far this year, with credit spreads grinding tighter as investors move in on any sign of sell-off.”
But by playing things too defensively, investors risk missing out on the earnings recovery in Europe and some major stock discounts.
Pioneer Investments’ head of global asset allocation research, Monica Defend, and head of european equities, Diego Franzin, are embracing risk assets in Europe.
“We attribute a low probability for a Le Pen win and expect that a firmer growth path for the eurozone should help in facing multiple geopolitical challenges, unless other tail risks materialize,” the duo said.
“From an equity perspective, the French stock market, which has lagged behind the euro area, has limited exposure to the Le Pen factor, being biased towards companies with a global reach.
“For this reason, signs of weakness could be seen as opportunities to add equity exposure through stocks with attractive valuations.
“As already experienced in recent geopolitical events, we believe that active managers have the potential to exploit market mis-pricing with a tactical approach, while keeping a strong focus on hedging with an aim to protecting investors’ asset from tail risk events.”
Lombard Odier Investment Strategist Samy Chaar echoed the appeal of European equities “for investors willing to look beyond the political fog.”
“For investors willing to look beyond the political fog, and prepared to bear the associated near-term volatility, the fundamentals of Europe’s recovery continue to be supportive of risk taking,” he said.
“European equities are trading at a 20% discount relative to US peers, and international investors still have relatively low exposure, deterred by the political uncertainty.
“A win for Emmanuel Macron – which is, by far, the most probable outcome – should encourage them to reassess their European equity underweights.”
