Credit Suisse Private Banking has upgraded its eurozone equities view to positive.
In a monthly newsletter, José Antonio Blanco, head of global MACS (multi asset class solutions) said: 'Valuations, fundamentals and our forecast of a weaker EUR speak in favor of eurozone equities, despite the political risks.
'We have thus increased our exposure to eurozone stocks to overweight and trimmed our overweight position in Swiss equities.'
The private bank's investment committee changed its stance three weeks ago based on leading indicators in Europe rising to five-year highs, rising profitability and strong earnings revisions relative to global equities.
Added Gerald Moser, head of equity strategy: ‘In addition to Switzerland, we now also expect eurozone and Canadian equities to outperform amid an overall neutral stance on equities.’
While market participants are expecting the euro to fluctuate significantly this week, ahead of the French elections, Credit Suisse believes it will stay weak against the US dollar, which will benefit exporters.
'‘The combination of these factors makes the case for stronger earnings growth in the eurozone than in the USA. This has not been reflected in market performance so far,' said Moser.
From a sector point of view, Credit Suisse likes energy, real estate and healthcare.
‘Energy, the worst performing sector so far this year, should benefit from higher oil prices, while healthcare has strong fundamentals and political risks are slowly diminishing,' said Moser.
‘Real estate, while a bond proxy, is not as sensitive to interest rates, in our view, as strong growth and attractive dividend yields should offset the potential headwind from higher rates.'
The private bank is cautious on consumer staples and industrials.
'Most unpredictable contest'
The Swiss firm believes any seemingly negative outcome from the upcoming French elections will be felt on the periphery and hence, has a negative view on Italian equities.
‘This election remains the most unpredictable contest we have seen in France in recent years,’ said Sandrine Perret, investment strategist –chief investment office, International Wealth Management, adding that lower voter turnout could become a decisive risk factor.
'A surprise win by Ms. Le Pen could have far-reaching consequences for Europe even if her plan to leave the euro would be difficult to implement without a parliamentary majority, something she is unlikely to secure.
'Still, EU integration would likely suffer under her presidency and markets could be quick to price in redenomination risk via higher bond yields, especially in the most fragile peripheral economies.'