In our Finance Talk, Christian Gattiker, Head Research & Investment Solutions, comments on the latest market developments. Key takeaways:
UK interest rate hike: “We believe that this is a pre-emptive rate hike that will allow the Bank of England to react at a later stage should something go wrong with Brexit. Neither the Brexit risks nor the economic environment actually warrant the current rate hike. The UK economy is actually slowing down. But this also means there will be no further rate hike until the year-end. Therefore, we think the Pound will remain in limbo and we remain neutral.”
Telecom sector upgraded to neutral: “The sector is extremely cheap. If you look at P/E relative to the rest of the market, it is actually at an all-time low. But if you look at the fundamentals of the sector, they are actually quite good: they have 9% free cash flow and pay almost 5% in terms of dividends.”
Bond proxies: “We remain cyclically exposed and we expect higher rates to benefit some cyclicals. But some bond proxies, which are those stocks that are stable but slow-growth earners, are becoming more and more attractive. One of these sectors is telcos, which is neutral, and the other is healthcare, which is also neutral. The rest are still underweight.”
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