Rising coronavirus cases accompanied by flagging recovery momentum and a fractious run-up to the US elections make prospects for equities highly reliant on 3Q results and further policy stimulus. Against this background we have downgraded our stance on euro area equities from neutral to underweight, following a similar downgrade for US equities in August.
We continue to like structural growth drivers and select, high-quality cyclical stocks. We also prefer companies with sufficiently strong balance sheets and pricing power to make them resilient to volatility.
The stability provided by the European Central Bank and EU recovery fund is making us more upbeat on peripheral euro area bonds. With base rates remaining low, reasonable growth and low