BMO Global Asset Management released details of its multi-asset team’s asset allocation this morning, which includes an overweight position in European equities.
In a supporting note the team wrote that corporate earnings in equities were showing “increased vigour”. This is despite slightly reduced optimism over the economic outlook seen in the wider market.
“Importantly for equity investors, corporate earnings are showing increased vigour, with the recent reporting season being the best seen for at least six years. This strength is helping to push global equity markets on to new record highs,” the team said.
Low inflation levels, supported by improving earnings momentum along with a synchronised economic upturn are combining to fuel optimism on the corporate outlook, the team added.
However, the team noted that the rise of tech stocks was leading to comparisons with the late 1990s and the ‘dot com’ bubble.
BMO GAM’s five-point asset allocation summary is this:
- Overweight in Europe (ex-UK) equities. European equities are trading at attractive valuations
- Japan equities is overweight. Continued inflows from the Japanese government’s pension fund should support equities in the near term
- Emerging market debt is neutral. In the medium term, the asset class will continue to benefit from the search for yield
- Moved from overweight to neutral in index-linked bonds. The UK economic outlook is weaker while the yield curve is flatter
- The UK equities allocation has moved from neutral to underweight. Many large-cap stocks benefit from the weaker pound.
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