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US equities on top of State Street's preferred investments list

Hong Kong

BUYING US stocks in 2018 was among the most popular trades for global investors. State Street Global Advisors says you still can't beat it.

Earnings growth and an American economy on solid footing puts US equities on top of Richard Lacaille's preferred investments list. Despite valuation opportunities in some beaten down emerging markets and European stocks, characteristics of US shares can offer a cushion to further uncertainty, said the chief investment officer at State Street Global Advisors, which manages about US$2.81 trillion.

"We still like the US," Mr Lacaille said in a Bloomberg TV interview in Sydney.

"From a quality and defensiveness perspective, it looks better and it is now in a mid-teens valuation. We prefer the US over some of the more troubled regions like Europe and emerging markets." Risk assets are rebounding this year amid optimism that US monetary policy will be less aggressively tightened and as the trade-war backdrop shows signs of thawing.

"We shouldn't be looking to the Fed as an issuer of puts, we should be relying on earnings," Mr Lacaille said. "Markets will move on earnings in the next couple of quarters. At the moment, there is quite a bit of momentum in the US economy and the only thing holding back is sentiment - for global investors that's dominated by the trade issue." He expects US-China trade relations to improve.

Almost 50 per cent of companies listed on the S&P 500 Index have reported earnings this season, and profits have surprised to the upside, according to data compiled by Bloomberg.

However, company profits are coming in worse relative to analyst projections than any time in almost two years.

Mr Lacaille said State Street lifted European stocks to neutral from an underweight position, though held back from becoming more bullish. He's looking for a catalyst later in the year that might lead him to change that position.

That could take the form of better signs of growth, an improvement in Italy or an end to Brexit woes, he said.

The key for emerging market equities, which have seen no shortage of recent calls from investment professionals to buy, will be an improvement in trade relations between the US and China.

"It seems likely that you'll get to a better point on trade," Mr Lacaille said. "When that comes, and I'm sure it will, you will see a turn in the dollar and a revival in risk taking amongst investors in emerging markets. But, it's a little too early for us now." BLOOMBERG