Economic outlook and equity radar

Europe

1. The driver of the European economy is and remains Germany. For now, it is the sole European country having solid domestic demand as well as exports, especially to the US, which are improving.  
2. European companies have become resilient on the debt and political crisis, however, a non-acceleration of the restructuring could prove critical for a lasting recovery. Bearing in mind that Europe has always been lagging the US in any past economic recovery, the present situation can be considered as good. 
3. We make no change to the rate of inflation which is expected to be in the region of 2% for 2013.

EMA

1. China: Economic activity in the region is bottom out; however the growth potential is expected to remain unlocked for quite some time because of lacking structural updates. 
2. Market rotation: It is expected that within the EMA, a cyclical recovery is in the making. This would suggest that higher beta markets such as Russia, Brazil and South Korea would benefit. Under such circumstances, one could expect a market rotation to take place, i.e. assets would shift away from China to Russia and Brazil which have under-performed during the recent years.  

USA

1. As of March 31, 2013, broad based US equity indices are to record high and the market has anticipated a strong economic recovery.
2. Given the present earnings figures (trailing figures), valuations are not overdone. 
3. Based on improving corporate EPS (about 5.5 % for 2012 and 2014), the market has some room to go further.