2021 is coming, and Bank of America (BofA) is very clear about its investment strategy in Europe for the next 12 months. Analysts at the US entity advise buy banking, insurance and resources (energy, raw materials …), and at the same time they believe that sell shares of pharmaceutical companies and utilities. These are your reasons.
“We continue to overweight finances, with special attention to banks,” these experts say in the latest report with investment advice that has been released Bank of America. And why that recommendation on banking? Very simple, as they say, because they expect the sector “Benefit from two key macroeconomic developments next year”.
On the one hand, they expect a rebound in new orders from the euro zone composite PMI to a recovery peak of 60 in June, thanks to the “disappearance of Covid-19 infections, the deployment of a vaccine and the stimulus. United States Attorney “. And, on the other, they believe that Bund yields will rise “as growth momentum improves, oil prices rise and core inflation strengthens” in the region.
“Banks have outperformed more than 30% since September, driven by increased confidence in a vaccine-led recovery. Our vision implies 25% more outperformance in Q3, which makes this sector our main overweight for 2021“.
But it’s not the only one that BofA recommends buying. It also continues to overweight insuranceas their assumption is that of a “12% higher return in the third quarter”, and the means. Regarding the latter, the strategists of the US entity explain that “the Energy it has far exceeded the stock turnover since the end of October “, although the relative price of the sector is still” more than 10% below the level of fair value implicit in the recovery of the oil price. “
In his opinion, “the 40% outperformance of mining since March has been driven by the rebound in copper, thanks to the recovery of the PMI in China and the strong depreciation of the dollar”, but it must be clear that the relationship prices of the sector “has not fully followed the rate of advance of copper in recent months, which points to a new increase of 5% in the future“.
STAY AWAY FROM PHARMACEUTICALS
Likewise, BofA remains neutral with cyclical sectors (capital goods, automobiles and luxury goods) after having lowered their advice to the “strong rebound” they have experienced. “Our projections point to a short-term decline in the relative price of the three sectors, with a renewed increase only from the second quarter.”
The only exception on cyclicals is the overweight advice they hold on airlines. As these analysts put it, “The sector has lagged behind in the recovery pickup so far due to virus-related travel disruptions. Our projections are consistent with a more than 20% rise in the relative price of airlines at the end of the second quarter “, they remarked.
Finally, they advise underweight the defensive sector and, in particular, stocks pharmaceutical and of utilities. According to Bank of America experts, “The pharmaceutical sector has underperformed 20% from its May peak, weighed down by rising US bond yields and a weaker dollar.”
“We expect this trend to continue, with bond yields rising in response to a recovery that is coming to an end and dollar weakening, due to the decrease in trade tensions and the normalization of the world economy “, they add.
The BofA strategists’ assumptions point to a “further 12% drop in pharmaceutical relative price for the third quarter, making it one of our key underweight sectors.” In addition, they advise selling the utilities, because their projections of the PMI of the euro zone “point to an inferior yield in 11% for the third quarter”.