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The economic divergences that started in 2014 will continue in 2015. The US faces the challenge
of tightening its monetary policy without harming the economic revival. The other regions must do
everything possible to support their economic growth.
The end of the year was marked by some jittery phases, particularly in Europe, and we took these
into account when drawing up our ten investment themes for 2015. We have divided our
investment themes into two main strategic areas: the search for yield and the opportunities in an
environment of low growth and low returns.
For defensive investors, the quest for yield is still the main challenge. We think long-bond yields
will rise, albeit gradually.
There are some interesting opportunities, detailed in the first three themes below.
Theme 1 – Opportunities in the bond universe
This first theme covers the relatively risky segments of the bond market where the cost of carry is
attractive and durations are short. These segments include European and American “High Yield”
bonds, a selection of emerging corporate bonds and European convertible bonds. These segments
will digest—without too much difficulty—a moderate rise in long-bond yields. This is our base
scenario for 2015.
Theme 2 – The long-term appeal of investments with high dividends
We have been recommending this niche for several years, keeping in mind that the quality of the
dividend is as important as the amount; the dividend must be secure in the future. Within this
theme, listed real estate investments provide attractive yields, much higher than the cost of
capital.
Theme 3 – The appeal of flexible solutions
Flexible solutions based on structured products and alternative investment funds enable us to
build defensive strategies with low volatility. We highlight the “Relative Value” and “Long/Short
Equity” strategies. Both are fairly insensitive to market movements and should not be penalised by
the expected rise in interest rates.
The second strategic approach is intended for investors who are willing to take on more risk. In
the context of low economic growth and low yields, equity markets are preferred. The upward
trend on stock markets in recent years will continue; any downturns should be considered as
opportunities to reinforce positions.
Theme 4 – Benefiting from the rising US dollar
The US economy is outperforming the European economy; it is far ahead in this economic cycle.
The Fed is going to start tightening its monetary policy at a time when the ECB will pursue its
unconventional, accommodative monetary policy. The dollar will remain strong and many stocks
will benefit.
Theme 5 – Investment as a key support to growth
The growth recovery will come in part from corporate spending by companies whose financial
situation is improving, particularly in the US. In Europe, the Juncker Plan, that has just been
announced, should help infrastructure spending.
Theme 6 – A European revival
For all its difficulties, Europe is changing slowly but surely. It is gradually becoming a more
integrated and more competitive region. The EU peripheral countries (Spain, Portugal, Ireland and
Greece) are further ahead in this process than France and Italy. However, we are confident in the
capacity of the European stock markets to recover in the long run, partly due to the fall in the
euro.
Theme 7 – Emerging markets, the race for change
In the long term, the fundamentals of rapid economic growth and the development of world trade
will favour the emerging markets. For 2015, we will focus on countries that are implementing
major structural reforms, such as China, Mexico, India and Indonesia.
Theme 8 – Technology innovations and operational efficiency
Technology innovations and operational efficiency will enable companies to rationalise costs and
improve margins. New technologies are changing the competitive scene and are beneficial for the
leaders.
Theme 9 – Demographic dividends: benefiting from the ageing population
This investment theme applies to the long-term horizon. It is not linked to the economic cycle
because demographic cycles are very long. Healthcare, leisure, tourism and financial services are
some of the sectors that are the most sensitive to this trend. Japan, with the oldest population in
the world, is particularly concerned.
Theme 10 – Opportunities in the currency markets
The key point of this theme is the continuous rise in the dollar in 2015. Euro-based investors will
therefore have more possibilities than dollar-based investors. For euro-based investors, the
Norwegian krone and the Pound Sterling are attractive currencies. For dollar-based investors,
only the Mexican peso and the Chinese yuan offer potential; both these currencies are also
attractive versus the euro, of course. In the short term, the Norwegian and Mexican currencies are
suffering from the decline in oil prices because they are hydrocarbon-exporting countries.
According to Florent Bronès, Chief Investment Officer at BNP Paribas Wealth Management: “2015
will see a rise in volatility because central banks are facing different constraints (the beginning
of rate hikes in the US, the debate on the form of monetary accommodation in Europe, ongoing
reforms in China, elections and structural reforms in Japan). We recommend benefiting from
phases of uncertainty to increase positions in risky assets.”
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