Fidelity has moved underweight to equities in the near term, down from a neutral position, with focus on technology and financial stocks.
In its Q3 investment outlook, the global asset manager said it was concerned about global growth, the US/China trade talks.
“Many market segments are overpricing global growth prospects, while trade war tensions could catalyse a sell-off. We continue to take a nuanced view at a regional level, however.
“Despite US stocks recaching new record highs, this remains a challenging environment for equity investors. Disconnects are appearing amid quick, sharp bouts of volatility. This uncertainty creates opportunities but it requires discipline to profit from them.”
However, the global asset manager remained overweight on a long-term basis as it felt equities were supported by global growth and valuations.
Looking at equity sectors, the firm said tech stocks received the most positive ratings from Fidelity analysts after bouncing back strongly in June. They were also positive on financials, where there was ‘substantial upside’ available and communication services.
“Tech stocks were hurt by the trade conflict but bounced back strongly in June led by semiconductors - an industry with deep supply chains and demand from China. The trade truce around Huawei is positive for US companies and we’ve improved the outlook for chipmaker Broadcom as a result.
“But it’s not yet clear exactly how far the restrictions will be lifted. Any clarification could lead to further gains for semiconductors, particularly given that a number of negative events have occurred in the past year so any positive newsflow could be a tailwind.”
On the other hand, they were least confident about materials, utilities, which had high valuations, and healthcare.
“The healthcare sector has some positives. Valuations aren’t demanding, innovation is improving and China is a growth area. But these are dominated by US pricing headwinds, most acutely affecting the managed care industry. International pricing benchmarks are difficult to implement and ‘Medicare for all’ is unworkable in practice but still caused a major correction in April. As the US election cycle ramps up we expect healthcare to be a contentious topic and rhetoric around regulations will burden the sector.”