Fra BNP Paribas:
What we have learnt during the earnings season: So far the Q2 earnings season has been a positive surprise, driven by extremely low expectations ahead of the current earning season. European companies have reported an earnings surprise of 36% compared with US companies reporting a surprise of 23%. The number looks positive but needs to be set in the context of earnings growth, which was down 70% and 35% for European and US equities, respectively.
Theme-based investing: We believe that theme-based investing will continue to gain in popularity, as global equity indices become a mixed bag of winners and losers in the Covid-19 crisis. Selecting the correct sectors, factors and themes is likely to continue to be important, in our view.
Focus on secular trends: During the last quarter (Q2’20) we launched two baskets focused on long-term secular trends that have accelerated due to Covid-19. Some behavioural changes, as we come out of the current crisis, will be permanent and we believe the next decade will be very different from last one. However, this is not new. Consumer behaviour changes rapidly and BNPP expectations of future winners were highlighted in our recently launched baskets. In Asia, secular trends are represented by our China ATM+ basket.
US election-driven themes: The coming US presidential election is likely to remain the major US theme for the next few months, so all of our US ideas are focused on different election scenarios. Knock-on effects from the US election result on European and global equities are likely to be limited in the near term. There could also be short-term headwind on our Asian tech-related baskets given rising US-China tension, but long-term secular drivers remain intact, in our view.
Rebuilding portfolio after Covid-19: The BNP Paribas Recovery basket and BNPP Global Transition basket remain our highest conviction basket ideas to gain broad equity market exposure. The recovery basket focuses on companies with strong balance sheets, high profit margins, secular growth characteristics and low operating leverage. These companies typically drive the market rally after large corrections, as in 2016 and 2018.
Environmental, social and governance (ESG) themes are likely to stay with us long term. We have seen strong flows into ESG themes since last year which have accelerated since the Covid-19 sell-off in March. We believe our long-short basket offers attractive exposure to ESG, because the basket is sector-neutral and relatively factor-neutral which distinguishes it from others.
