Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

State Street upbeat on US, Asia and emerging market stocks

Glenn Freeman  |  30 May 2018Text size  Decrease  Increase  |  
Email to Friend

An increasingly bearish outlook on European equities and cautious optimism on Australia and New Zealand are among State Street's current positions.

The multi-asset manager had already been pulling back on its exposure to Italy before yesterday's developments in the country's deepening political crisis.

Investors fear that repeat elections - which now seem inevitable in the eurozone's third largest economy - may become a de facto referendum on Italian membership of the currency bloc and the country's role in the European Union.

The euro was down 0.3 per cent yesterday, while stocks in Milan slid 2.6 per cent on the main index after a 2.1 per cent fall on Monday. Bank shares slumped another 5 per cent, having lost 4 per cent in the previous session, bruised by the sell-off in government bonds, a core part of Italian banks' portfolios, according to AAP.

mario draghi ECB

European Central President Mario Draghi vowed in 2012 to do whatever it takes to avoid "QuItaly".

"We had been broadly overweight euro equities as we entered the year, and have since pulled that back," Dan Farley, chief investment officer of State Street Global Advisors' investment solutions group in the US, told Morningstar.com.au.

"In Europe more broadly, the valuation story looks kind of interesting … but the expected growth rate and recovery in Europe has not been as strong as what we would say is needed to start to drive earnings and to see that valuation discount realised," Farley said.

He added that the United Kingdom's prolonged exit from the EU continued to create "a lot of uncertainty in terms of what exactly Brexit will look like … a bit of an overhang on expectations there, and investors are seeing price points are not great. It's difficult to have a good view on corporate growth until some of these rules are in place".

More attractive markets

Overall, Farley remains upbeat on equities and continues to hold an overweight position to markets. "When we look at the economic backdrop, which is positive but not overly strong, we look at rates around the world and some parts are rising, but still relatively low."

"So, we're overweight equities across our tactical portfolios, and that is largely positioned by US equities, Asia Pacific regional equities, and emerging markets … and each of those has different drivers," he said.

Farley said State Street's rationale for maintaining a strong US exposure was backed up by "a growth backdrop story, and less about valuation, while in emerging markets, it's valuation and growth".

"In areas like Japan, it's a bit more valuation and the uptick in growth – all of those have led us to be overweight stocks and underweight fixed income across the board," Farley said.

Australia and New Zealand

Cautious optimism is perhaps the best way to describe State Street's approach to local markets in Australasia. "We see Australia and New Zealand [collectively] as being a nice beneficiary of the Asian story, given the connectivity with that region and the business ties there.

"But there are areas that we want to be mindful of, such as if there were a slowdown in China, how that would impact the local economy here, and clearly you've got elevated property prices. All those things mean that Australia needs to deliver, and so we're mindful of those risks, but it's not something we're shying away from."

More from Morningstar

• Why Telstra will maintain industry dominance

• AustralianSuper tops performance league tables

• Make better investment decisions with Morningstar Premium | Free 4-week trial

 

Glenn Freeman is senior editor at Morningstar Australia.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

is senior editor for Morningstar Australia

© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend