Positive return for EM equities,

Global risk appetite, all in all, improved in February, especially towards the end of the month, due to: the extension of the Greek bailout by four months, Fed Chair Yellen’s expressed optimism on both the US labour markets and the medium-term reflation outlook, and the emergence, finally, of stronger data from the US. It appears that consumers are responding to these positive trends by increasing their savings rate and paying off debt rather than boosting consumption.

After weeks of downgrades, US 12-month forward earnings estimates rose for the first time this year, following the US Q4 earnings results, which, in aggregate, were 6% ahead of consensus expectations, despite the strengthening dollar (50% of US corporate revenue comes from overseas).

Cyclical sectors (Consumer Discretionary, Technology) performed strongly, while defensive sectors (Consumer Staples, Utilities) lagged.

• Although the US economy remains robust, stock-market valuations are starting to become more expensive, especially when taking into account the strengthening dollar.
• We still like the IT sector (strong final demand and continuous M&A activity) as well as Consumer Discretionary (play on lower oil prices).
• Although we took some profit on Healthcare stocks, we still remain significantly exposed to the sector.
• We remain neutral on Industrials, given its tight relationship with the oil sector.
• We also became more cautious on Consumer Staples, mostly because of the impact of the strong USD on the revenues of the underlying companies.