• As trade tensions eased, global equity markets continue to rally, with the MSCI World now up 11%
year-to-date. Most regions participated, but the UK underperformed, weighed down by a stronger pound
which hit a 21-month high. At a sector level, Tech and Cyclicals were again top this week, with global
Cyclicals now outperforming the Defensives by a significant 600bp year-to-date. • Equities are
outperforming most other asset classes, with beta sectors leading. Bears keep arguing that one should be
positioned defensively this late in the cycle. However, our global equity strategists believe beta
sectors have further upside and that the current backdrop is similar to the ’15-’16 mid-cycle episode.
Moreover, they highlight that as China stimulus starts to be felt, Eurozone data stabilizes, US growth
proves to be resilient, trade uncertainty impact washes out and commodity prices sequentially move
higher, the Cyclicals P/E relative could re-rate further, as seen in ’15-’16 episode, on top of the
rebound in the earnings momentum. Regionally, EM is their top pick for 2019, with China most preferred
and within DM they remain OW US vs Eurozone/UK. Within the UK market, they have in January reversed their
long standing bearish call on UK domestic plays, advising the investors to exit UK exporters. The UK
domestic plays are beating exporters by 9% year-to-date and the UK homebuilders are up by 17%
year-to-date relative to FTSE100, with our strategists believing there is more to go. At a sector level,
they are in particular positive on commodity beta plays such as Miners, and Energy. More broadly, they
find Global Cyclical plays such as Semiconductors, Capital Goods and Autos to be attractive.
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