Equities

Equity Giant Amundi Shifts to Neutral Amid Valuation Concerns

NEGATIVE

Amundi SA shifts to neutral on developed market equities, eyeing dips for entry after missing a rally, amid high valuation concerns.

By Athena Xu

4/4, 06:06 EDT
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Key Takeaway

  • Amundi SA shifts to neutral on developed market equities, eyeing dips for entry after missing a significant rally.
  • Expresses skepticism towards high valuations, especially in tech, with S&P 500 trading at 21-times forward earnings.
  • Despite cautious stance, Amundi's selective strategy led to outperforming 70% of peers with only 21% stock exposure.

Equity Outlook Shifts

Europe's largest asset manager, Amundi SA, with a hefty $2.1 trillion in assets under management, has recently shifted its stance on developed market equities to neutral, following a period of caution that saw the firm sitting out a significant market rally. This cautious re-entry into the equity market comes after Amundi downgraded its view in January 2023 due to fears of a looming recession. Although a deep economic contraction is no longer anticipated, Amundi's head of the Amundi Institute, Monica Defend, suggests that the firm is biding its time, waiting for a drop in valuations before bolstering its equity exposure.

Valuation Concerns

Despite the change in outlook, Defend's comments reveal a nuanced skepticism towards the current state of the market. "Given how high the valuations are at this stage, we’re kind of skeptical that they’re really justified by earnings," she remarked, pointing to a market that, in her view, may not be as robust as it appears. This skepticism is particularly directed at the technology sector, where the S&P 500 Index, buoyed by tech giants like Nvidia Corp. and Microsoft Corp., trades at nearly 21-times forward earnings, significantly above the long-term average of 16. Such high valuations raise questions about the sustainability of recent gains and whether they truly reflect the underlying financial health of these companies.

Missed Opportunities and Strategic Caution

Amundi's strategic caution has had its costs. A decision to reduce allocation in June 2022, though initially seeming prescient following a 16% slump in the MSCI World Index, was followed by a rally that the asset manager largely missed out on. This rally was fueled by a stronger-than-expected US economy and easing price pressures, challenging Amundi's cautious stance. Despite this, the firm's selective approach to stock picking and its emphasis on waiting for market corrections as buying opportunities reflect a conservative strategy that prioritizes long-term value over short-term gains.

Performance Amid Caution

Interestingly, Amundi's cautious approach has not necessarily translated into underperformance when compared to its peers. The Amundi Pioneer Income Opportunities Fund, with a diversified portfolio that includes equities, fixed-income, and money market instruments adhering to ESG criteria, has outperformed 70% of its peers over the past year. This success, achieved with a relatively modest 21% exposure to stocks, underscores the potential benefits of a conservative and selective investment strategy, even in a bullish market environment.

A Balanced Stance

Despite the broader market's enthusiasm, particularly in the US where firms like BlackRock Investment Institute have upgraded their view on stocks due to optimism around artificial intelligence, Amundi maintains a balanced and somewhat defensive posture. The firm sees potential in high-quality materials within the industrials sector, suggesting a nuanced approach to finding value in an otherwise expensive market. This contrasts with BlackRock's underweight position on European equities, driven by poor investor sentiment, highlighting the divergent views among asset managers on the best path forward.