names are still showing up in the less attractive quadrant on these metrics, suggesting that even at a bottom up level these sectors may be vulnerable to deteriorating EM data.
This reinforces the tactically bearish signal on both sectors that we picked up this month from our Sector Tactical Conviction (STC) model. By contrast, given the derating and the low EPS expectations of EU exposed stocks, many sit in the ‘more attractive’ quadrant. We believe the positive momentum in these stocks can continue as forward looking components of EU PMIs suggest further improvement even if EM/Chinese data risk further deterioration. In our view, this will keep domestic EU equity sectors well supported and a relative winner over coming months.
