Strategists at Goldman Sachs back going 'long' on Britain's FTSE 100
equity index while going 'short' on Switzerland's SMI equity
index, arguing that the FTSE's greater component of cyclical stocks should help
it outperform in an improving economic environment.
"More cyclical or more global-growth exposed markets such as the DAX
or FTSE 100 should do better than the SMI, which is more dominated by
consumer staples and defensives and on a high multiple," they write in a
"We currently recommend being long FTSE 100 vs short SMI," they add.
'Defensive' stocks - those seen as most resilient to any downturn in the
global economy - such as healthcare groups Roche and food company
Nestle - dominate much of the Swiss index.
However, more 'risk-on' and cyclical sectors such as financials and miners -
seen as more sensitive to swings in the economic cycle and which underperform
falling markets but outperform when markets rise - carry more weight on the FTSE
Goldman strategists write that uncertainty over the global economy has
driven up valuations on the more defensive parts of the equity market, but signs
of less stress in the euro zone's debt crisis may now boost more cyclical
sectors, at the expense of 'safe haven' defensive stocks.
"The risk premium...has started to come down as sovereign risks in Europe
have diminished and as market participants have started to anticipate a turn in
the cycle," they write.
"We expect a further fall in the risk premium along with improved economic
growth to reduce investor preference for these 'safe haven' stocks."
The FTSE 100 has risen by around 9 percent since the start of 2013, while
the Swiss SMI index has climbed 15 percent, meaning some traders feel the Swiss
market has less room for further gains than the FTSE.
Reuters messaging rm://firstname.lastname@example.org