Investors have piled into US equities following the presidential election in November.
But the asset class has priced in US economic growth to occur faster than what the firm anticipates, Mortier said in an FSA interview during a rcent visit to Hong Kong. The firm has a more sober US macroeconomic view than the market consensus.
“[Investors] don’t take into account the strengthening of the US dollar, which is not good news for most US companies who are doing lots of business outside of the US.”
The expensive valuations have prompted Amundi to remain cautious toward US equities. The firm is currently a bit underweight the asset class and has also protected its portfolio by hedging via put options on the S&P 500, according to Mortier.
There is also uncertainty surrounding the the new presidential administration’s policies and whether they will be pushed through.
Mortier does not believe there will be a massive economic expansion in the US linked to Trump’s proposed policies, adding that the firm only increased its US GDP and inflation projections by a small fraction.
“If there are tax cuts, they should be compensated mostly by spending cuts, and spending cuts have immediate negative effects on the GDP,” he said, adding that although there may be positive effects with tax cuts, they are slow to materialise.
In addition, he does not believe that there will be trillion of dollars in infrastructure spending.
“Some very senior republicans have said infrastructure [spending] should be under private-public partnerships and only if the economy is slowing. It is only to be used if a recession is coming.”
Overweight EM equities
The firm’s underweight in US equities is offset by its overweight in emerging market equities.
“Emerging markets have been, overall, good this year,” Mortier said, adding that the firm is also overweight emerging market credit.
There is still value when investing in emerging markets on the basis of their undervalued currencies, especially in North Asia, such as Korea and Taiwan, and also in Indonesia, he said.
In European equities, the firm has moved overweight to a slightly overweight to neutral position.
“In Europe, you have to be selective because it is a market where some countries or companies have been somehow expensive or cheap.” Therefore, stockpicking, he said, will be an important factor in 2017.
