As Kasper Elmgreen, “head of equities” at asset management company Amundi, reminds us, the situation is tough for investing in European stocks at the moment. Banks, consumer discretionary and construction materials are the best options, as are some growth stocks that have been heavily discounted.
We had the opportunity to meet Casper Elmgreen during the Amundi World Forum, which took place in early June in Paris. In 2019, the man became the head of the investment department at the French asset manager after holding similar positions for almost 15 years at the Scandinavian asset managers BankInvest Asset Management and Nordea Asset Management. Today, he also manages the Amundi platform for European, Japanese and global equities. For Trends-Tendances, Kasper Elmgreen talks in detail about the state of the current financial markets and points out the various opportunities they open up.
We had the opportunity to meet Casper Elmgreen during the Amundi World Forum, which took place in early June in Paris. In 2019, the man became the head of the investment department at the French asset manager after holding similar positions for almost 15 years at the Scandinavian asset managers BankInvest Asset Management and Nordea Asset Management. Today, he also manages the Amundi platform for European, Japanese and global equities. For Trends-Tendances, Kasper Elmgreen talks in detail about the state of the current financial markets and points out the various opportunities they open up. TRENDS-TRENDS. How do you assess the current situation in the financial markets? CASPER ELMGREEN. Stock markets, as a rule, predict the development of the economy. However, the context is currently very uncertain, with very significant differences depending on what is likely to happen in the coming months, be it monetary policy, developing geopolitical tensions or supply issues. Today, there are many elements that could throw Europe into recession. But at the same time, the continent can also avoid bad news if a deal is quickly reached in Ukraine. Today, there are few elements to suggest that the economy will suddenly collapse, and earnings expectations are still very high. But in this uncertain environment, it’s no surprise that stocks are struggling to generate positive returns. I feel like we’re waiting for the storm to break. How do you see the development of the situation? The question to be asked today is whether the risks have been well integrated into the valuation after prices have fallen 35% since the peak reached in 2021. I think this decline has taken some companies to their current attractive levels and there are clear opportunities for active managers. But subject to selectivity. In this context, which sectors do you prefer? The banking sector will benefit from an increase in key rates, and the end of negative rates imposed by the European Central Bank will be an important support for the sector’s earnings. The current crisis is not a financial sector crisis, and we especially appreciate the big chain banks that have spent much of the last 10 years making themselves less systemic. We also like stocks that are prone to cyclical consumption and are more focused on domestic demand, such as low-cost airlines or the leisure sector. Finally, the construction materials sector should be prioritized thanks to the budgetary policies that are being implemented (Green Deal, etc.). Should value stocks still be preferred? Since the beginning of the year, quality cyclical stocks and the value style have performed well against growth stocks. We believe this marks a reversal of direction after a very long period of growth stocks being outpaced by low key rates from major central banks. Value stocks remain attractively valued and should generally benefit from increased investment in the energy transition. But emerging technology stocks have been so depressed in recent months that there are now opportunities to be found in this segment, even if the big losers will remain under pressure for some time. And symptomatically, we had the opportunity to invest in technology stocks for the first time in our value funds. Regarding this question, will the timeframes of the various infrastructure plans be able to reduce some macroeconomic uncertainties? Unlike the stimulus plans introduced in the United States, which mainly lead to overheating of the economy, the timeframes of the various European plans should effectively withstand the impact of the economic downturn. What should we be aware of in the current environment? The clouds over the European markets are very threatening today, which requires us to be very selective. Particular attention must be paid to the financial health of companies and their ability to protect their margins through dominant positions or the strength of a mark or patent. A sharp increase in inflation will have very different effects depending on companies in the same sector. The corporate message turned a bit more cautious after Q1 results, and I expect increased volatility with a bigger impact on results as the reporting season gets underway in the coming days. Consumers will also adapt their habits, buying fewer or cheaper brands. And what about energy prices? significantly increase production. And it looks like we’ll still need oil a little longer than expected. The biggest risk for oil is that its high price will cause a downturn, which could lead to a sharp drop in demand. Is Europe’s desire for autonomy an opportunity? Increasing European autonomy in sectors such as energy or defense will require significant investment, especially if there is now a desire to accelerate this transition. For investors, this process will mean significant opportunities if they can position themselves among the companies that will provide the solutions. However, this is a long-term opportunity that will create a better environment for attracting private capital. For example, if Europe has ambitions to develop semiconductor manufacturing capacity, the supply of electricity must be assured, as it takes four to eight weeks to restart a component factory, and a power outage has astronomical consequences for such a factory’s profitability. .