Credit Suisse reiterates preference for Defensives
Strategists at Credit Suisse said they preferred Defensive shares over Cyclicals, albeit with one exception, financials, which led them to reiterate their 'benchmark' stance towards the former.
The main reason for their caution is that Cyclicals are pricing-in a level for the new orders sub-index in European purchasing managers' indices of 59.0, which is consistent with a rate of economic growth of nearly 4%.
A similar gauge for the US, from ISM, was peaking, as was the number of macro surprises, Credit Suisse added.
Their preferred sectors are still Telecommunications and Pharmaceuticals and among Cyclicals, financials and technology, with their favourite geographical regions for the latter being Continental Europe and Global Emerging Markets.
"Non-financial cyclical valuations are expensive in the US and neutral in Europe," the broker said.
Furthermore, levels of sector risk appetite were "euphoric" and hedge-funds' weighting in Cyclicals have risen to normal levels in the States.
Several so-called Trump/reflation trades, such as the US dollar or Emerging Markets, had also unwound back to their pre-election levels, yet Cyclicals remained "somewhat elevated", they said.
However, Garthwaite still likes some Cyclicals because of their exposure to growth on the Continent or on valuation grounds and because of the stage in the corporate earnings cycle at which they are at, such as WPP and Johnson Matthey.
Among Defensives, telecoms was their stated preference, including Deutsche Telekom, Vodafone and Com Hem, all of which were at 'Outperform'.