Investors breathed a sigh of relief after centrist, pro-EU candidate Macron's victory in the 1st round of French elections. Since then, European markets have come out swinging. Now he's secured the presidency, is another surge likely? In our view, the answer is "oui".
Go with the flows
Since 24 April, investors have been ploughing money into ETFs tracking the CAC 40 index, the main benchmark for French blue-chips, with net inflows totaling €400m over the period.** Those flows may redouble now we have the definitive result. Political risk seems to be easing and European markets look set to soar.
Broad European indices offer one route but investing in individual countries may prove more rewarding, provided you're in the right place at the right time. At Lyxor, we give you more ways to explore this story than any other provider. Right now, we see:
French equities in the spotlight
French equities could be the clear winners. The CAC 40 has lagged peers like Germany's DAX for some time. Now political risk has eased, its catch-up potential is clear. Macron's economic programme, including housing tax cuts, labour market reform and significant savings in public spending is perceived as market-friendly. Parliamentary elections present a potential obstacle, but Le Pen's loss means the picture is positive overall.
The three key sectors for the CAC 40 benchmark are industrials, consumer discretionary and financials - all cyclical, and all likely to do well if markets recover. You could dig deeper again with the CAC Mid 60 Index. Nearly half of its constituents are industrials and consumer discretionary companies, so it could be another way to play a French recovery. Watch this space should Macron get the majority he needs to force through his reforms in full. For now, the polls suggest he could.
Find out more:
>>Lyxor CAC 40 (DR) UCITS ETF
Italy: exposure to banks could help
We see potential in Italy, but can't ignore the threat of snap elections later this year. Life wouldn't be the same without some political risk somewhere!
Should that threat be averted, Italian equities could ride the wave created by a Macron presidency. The FTSE MIB comes with great catch-up potential for two main reasons: attractive valuations and its heavyweight financials exposure (33%+). Companies like Intesa Sanpaolo, Unicredit and Generali account for some of the top stock weights.
>>View the Lyxor FTSE MIB UCITS ETF
Spain: a better beta play?
The elephant in the room is the potential for another banking crisis in Italy. Headlines haven't been overly kind to recapitalisation-seeking banks like Unicredit and Banca Monte dei Paschi di Siena. If you share their view, you could turn towards Spain's IBEX 35 instead.
The Spanish economy is much healthier than it was, but the country's stocks are yet to reflect that improvement. There's plenty of room for them to grow given the European recovery, easing political risk and attractive valuations. The IBEX 35 is dominated by cyclical stocks - financials account for a third of the index, while cyclical sectors in general account for around two thirds. It generates around 20% of its revenue from Latin America, so improving outlooks for Brazil (better growth, better government) and Mexico (Trump's softer stance on trade) bode well.
>>View the Lyxor IBEX 35 (DR) UCITS ETF
The Greek wild card
The familiar, and slightly dispiriting, story of negotiations between Greece and the Troika - the European Commission, the ECB and the IMF - on the country's spiraling debt took another turn last week. A bailout agreement was made, which should lead to a vote of additional austerity measures by 17 May, and the disbursement of another tranche of the aid package ahead of looming debt repayment deadlines in July.
It is probably too early at this stage to take a definitive stance on Greek equities: debt relief isn't guaranteed, and valuations seem expensive. But 10 years of underperformance suggest there is some room to catch up if the path to debt relief can be smoothed.
>>Find out more about the Lyxor FTSE ATHEX Large Cap UCITS ETF
Lyxor offers some of the oldest and most widely traded single country ETFs on the market. Find out more about how you can capture the European recovery on www.LyxorETF.co.uk
*Source: Lyxor International Asset Management, Bloomberg. Data as 03/05/2016. Past performance is not a reliable indicator of future results.
Disclaimer
This communication is exclusively directed and available to Institutional Investors as defined by the 2004/39/EC Directive on markets in financial instruments acting for their own account and categorised as eligible counterparties or professional clients. This communication is not directed at retail clients.
This document is issued in the UK by Lyxor Asset Management UK LLP, which is authorised and regulated by the Financial Conduct Authority in the UK under Registration Number 435658. The Fund is registered as a "recognised scheme" for the purposes of Section 264 of the Financial Services and Markets Act 2000 (FSMA) of the United Kingdom and shares/units in the fund may upon such registration be promoted and sold to the general public in the United Kingdom subject to compliance with FSMA and applicable regulations under FSMA. Potential investors in the United Kingdom should be aware that most of the protections afforded by the United Kingdom regulatory system will not apply to an investment in the fund and that compensation will not be available under the United Kingdom Financial Services Compensation Scheme. Lyxor Green Bond (DR) UCITS ETF is an investment company with Variable Capital (SICAV) incorporated under Luxembourg Law, listed on the official list of Undertakings for Collective Investment, authorised under Part I of the Luxembourg Law of 17th December 2010 (the "2010 Law") on Undertakings for Collective Investment in accordance with provisions of the Directive 2009/65/EC (the "2009 Directive") and subject to the supervision of the Commission de Surveillance du Secteur Financier (CSSF). The product is a sub-fund of Multi Funds Luxembourg and has been approved by the CSSF. The fund complies with the UCITS Directive (2009/65/EC).
Société Générale and Lyxor AM recommend that investors read carefully the "risk factors" section of the product's prospectus and Key Investor Information Document (KIID). The prospectus in English and the KIID in the relevant local language (for all the countries referred to, in this document as a country in which a public offer of the product is authorised) are available free of charge on lyxoretf.com or upon request to [email protected].
The product is the object of market-making contracts, the purpose of which is to ensure the liquidity of the product on the LSE and Euronext, assuming normal market conditions and normally functioning computer systems. Units of a specific UCITS ETF managed by an asset manager and purchased on the secondary market cannot usually be sold directly back to the asset manager itself. Investors must buy and sell units on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units and may receive less than the current net asset value when selling them.
Updated composition of the product's investment portfolio is available on www.lyxoretf.com. In addition, the indicative net asset value is published on the Reuters and Bloomberg pages of the product, and might also be mentioned on the websites of the stock exchanges where the product is listed.
Prior to investing in the product, investors should seek independent financial, tax, accounting and legal advice. It is each investor's responsibility to ascertain that it is authorised to subscribe, or invest into this product.
This document together with the prospectus and/or more generally any information or documents with respect to or in connection with the Fund does not constitute an offer for sale or solicitation of an offer for sale in any jurisdiction (i) in which such offer or solicitation is not authorised, (ii) in which the person making such offer or solicitation is not qualified to do so, or (iii) to any person to whom it is unlawful to make such offer or solicitation. In addition, the shares are not registered under the U.S Securities Act of 1933 and may not be directly or indirectly offered or sold in the United States (including its territories or possessions) or to or for the benefit of a U.S Person (being a "United State Person" within the meaning of Regulation S under the Securities Act of 1933 of the United States, as amended, and/or any person not included in the definition of "Non-United States Person" within the meaning of Section 4.7 (a) (1) (iv) of the rules of the U.S. Commodity Futures Trading Commission.).
No U.S federal or state securities commission has reviewed or approved this document and more generally any documents with respect to or in connection with the fund. Any representation to the contrary is a criminal offence.
This document is of a commercial nature and not of a regulatory nature. This document does not constitute an offer, or an invitation to make an offer, from Société Générale, Lyxor Asset Management (together with its affiliates, Lyxor AM) or any of their respective subsidiaries to purchase or sell the product referred to herein.
This fund includes a risk of capital loss. The redemption value of this fund may be less than the amount initially invested. The value of this fund can go down as well as up and the return upon the investment will therefore necessarily be variable. In a worst case scenario, investors could sustain the loss of their entire investment.
This material is of a commercial nature and not a regulatory nature.
This document is confidential and may be neither communicated to any third party (with the exception of external advisors on the condition that they themselves respect this confidentiality undertaking) nor copied in whole or in part, without the prior written consent of Lyxor AM or Société Générale.
The obtaining of the tax advantages or treatments defined in this document (as the case may be) depends on each investor's particular tax status, the jurisdiction from which it invests as well as applicable laws. This tax treatment can be modified at any time. We recommend to investors who wish to obtain further information on their tax status that they seek assistance from their tax advisor.
The attention of the investor is drawn to the fact that the net asset value stated in this document (as the case may be) cannot be used as a basis for subscriptions and/or redemptions.
The market information displayed in this document is based on data at a given moment and may change from time to time.
Authorisations: Lyxor International Asset Management (Lyxor AM) is a French management company authorised by the Autorité des marchés financiers and placed under the regulations of the UCITS (2009/65/EC) and AIFM (2011/61/EU) Directives.
Société Générale is a French credit institution (bank) authorised by the Autorité de contrôle prudentiel et de résolution (the French Prudential Control Authority).
Lyxor International Asset Management ("LIAM") or its employees may have or maintain business relationships with companies covered in its research reports. As a result, investors should be aware that LIAM and its employees may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Please see appendix at the end of this report for the analyst(s) certification(s), important disclosures and disclaimers. Alternatively, visit our global research disclosure website www.lyxoretf.com/compliance.
CONFLICTS OF INTEREST This research contains the views, opinions and recommendations of Lyxor International Asset Management ("LIAM") Cross Asset and ETF research analysts and/or strategists. To the extent that this research contains trade ideas based on macro views of economic market conditions or relative value, it may differ from the fundamental Cross Asset and ETF Research opinions and recommendations contained in Cross Asset and ETF Research sector or company research reports and from the views and opinions of other departments of LIAM and its affiliates. Lyxor Cross Asset and ETF research analysts and/or strategists routinely consult with LIAM sales and portfolio management personnel regarding market information including, but not limited to, pricing, spread levels and trading activity of ETFs tracking equity, fixed income and commodity indices. Trading desks may trade, or have traded, as principal on the basis of the research analyst(s) views and reports. Lyxor has mandatory research policies and procedures that are reasonably designed to (i) ensure that purported facts in research reports are based on reliable information and (ii) to prevent improper selective or tiered dissemination of research reports. In addition, research analysts receive compensation based, in part, on the quality and accuracy of their analysis, client feedback, competitive factors and LIAM's total revenues including revenues from management fees and investment advisory fees and distribution fees.
