Despite the outperformance of shares of European companies with a strongexposure to emerging markets in recent weeks, UBS strategists see no majorimprovement in emerging economies that would justify boosting exposure to thesestocks.
"For one, we are not convinced that emerging markets' macro fundamentalshave seen a major shift and stick to our view of a developed-markets-ledeconomic recovery," they write in a note.
Instead, the strategists recommend looking at stocks that haveunderperformed so far this year and which have better earnings momentum than themarket and that look attractively valued relative to the market, citing namessuch as IAG, Siemens and Lloyds.
"There has been brutal sector, stock and style rotation within the market.But we see this driven by investor positioning, hedge fund de-leveraging and theneed for a pause, rather than a 'regime change'," they write.
"We see these recent moves as all part of the process as we move from are-rating driven bull market to a much choppier, earnings-driven one."
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