Investors Should Rethink U.S., Europe Risk, TIAA's Nick SaysBy and
Markets see ‘all downside’ in Europe ahead of French elections
Disappointment awaits if Republicans stall on plans, he says
Investors who bid up U.S. stocks on optimism about Republican leadership while shunning Europe because of political uncertainty on the continent should think about whether both trades are going too far, said Brian Nick, chief investment strategist at TIAA Investments.
Markets are “treating political risk as if it’s all upside in the U.S., and all downside in Europe,” Nick said Friday in an interview on Bloomberg Television. “I think we’re much more likely to see political risk come down in the euro zone.”
France’s CAC 40 equity benchmark index has trailed U.S. stocks this year, as investors fret about the risk of anti-European Union candidate Marine Le Pen winning the presidential election. In the U.S., the market surge was fueled by optimism that President Donald Trump’s plans to cut taxes and regulation will stoke economic growth.
TIAA Investments projects the S&P 500 Index will end this year at 2,400, little changed from current levels, Nick said.
“A lot of people were looking to tax reform, infrastructure spending and reforming the Affordable Care Act as potential catalysts, or at least justification for why the market had climbed or why confidence metrics have climbed,” Nick said. “If you end up not seeing that, it could deliver a potential disappointment to markets, whereas I think in the euro zone we’re probably pricing in too much of a tail risk around the French elections.”
Nick’s unit oversees a portion of the $882 billion in assets under management at TIAA’s Nuveen segment. The strategist said he also sees opportunity in Latin American markets including Argentina and Brazil.
‘Really Nice Formula’
“You’ve seen a change of governance there in the last 12 to 18 months. That tends to be a pretty nice catalyst when it’s a more market-friendly government that’s delivering on economic reforms,” he said. “You’re also seeing the fact that the U.S. dollar has weakened a bit this year and has given some of these countries a little bit of cover to cut interest rates, and that’s a really, really nice formula for emerging-market stocks.”
The acceleration of global growth is also a plus, according to Nick.
“That was the recipe that gave us the last emerging markets rally,” he said.