Europe’s earnings woes and dollar diversification
Earnings are dominating events in Europe on Thursday, with Nestlé, Nokia and L’Oréal all seeing strong gains, but oil prices gains are keeping a cap on investor sentiment. Transit through the Strait of Hormuz remains effectively closed, and the deadlock also continues to weigh on stocks across Asia, where Samsung Electronic shares closed at a fresh record high. U.S. futures , meanwhile, are indicating a negative open on Wall Street. Here are four investment strategies we heard out of CNBC’s London and Singapore studios on Thursday to help navigate the noise. Dollar diversifier Sunil Garg, CIO of Lighthouse Canton says investors should look beyond alternative fiat currencies for diversification from the dollar. “There was a lot of focus on dollar debasement and looking at alternative currencies. To my mind, going from one fiat to the other doesn’t make sense — the true dollar diversifier is gold. [Gold] has eased for a variety of reasons, it hasn’t been that ‘safe haven’, but that is…the big opportunity that we see. [When looking] for dollar diversifiers, you look for very specific areas of growth where you’ve got multi- year opportunities.” Broadening of growth dynamics While the hyper-scaler AI capex story has dominated headlines in recent months, Luke Barrs, chief business officer, fundamental equity at Goldman Sachs Asset Management, believes there is opportunity beyond the market’s biggest names. “Even though we focus the earnings power as a function of that hyper-scaler capex, there is broadening of the beneficiaries of that. So, we mentioned Korea, we mentioned Taiwan. But if we also think even in the US market, your S & P 500 is 35% tech, give or take. Five companies make up a quarter of the S & P 500. There’s another 90 companies that play in that tech space that are significantly driving that opportunity. We think that’s where investors will start to look.” Europe’s earnings concern As Europe’s earnings season prepares to get into full swing, Gerry Fowler, head of European equity strategy at UBS, is expecting “quite a lot of earnings cuts” in the coming weeks. “We had been positive on Europe because we saw the broadening of the industrial recovery because of German fiscal spending. We saw the renewables trade. We saw the data center capex trade, and we thought the consumer would join in. We thought valuations were cheap and flows would support the European market. So much of that has been knocked on the head…at this point, we think we’re going sideways for the summer. Very much like last year, the market just treads water. Lots of bifurcation where some things are still doing quite well, but we start seeing more weakness across half of the European market.” “Part of this is that valuations have stagnated, not reversed. Valuations are fair, but not cheap, and so we really just need to see who can maintain their earnings versus those that are going to have to cut. We’re expecting quite a lot of earnings cuts.” Underweight Europe Jim Caron, CIO at Morgan Stanley IM highlighted the impact higher energy prices will have on Europe, arguing that corporates in the region are feeling the pinch of higher input prices. “Europe is going to be much, much more sensitive to higher energy prices and you can see a downturn in growth a lot faster in Europe. This is one of the reasons that we started to think about our position. We came into the year overweight Europe, underweight the US. We’ve been in that position since the end of 2024 — very out of consensus at the time. With this energy crisis, we moved our positions to neutral, to underweight Europe and overweight the US.”
<
