Natixis Investment Managers has reduced its exposure to equities as it believes valuations remain at a high level.
The firm said the economic recovery remained on track and the spread of the COVID-19 Delta variant had stabilised but that the peak had now passed.
“Equity markets have experienced volatility in recent weeks but we remain optimistic,” it said.
“We expect strong economic growth despite a deceleration with strong support from central banks and government spending.
“Valuations remain at high levels but we believe earnings growth will continue to support the market in the coming months.”
In an investment note, the firm said it had reduced its overweight position because of this market environment.
“We have maintained a bullish bias but have reduced our overweight on equities in our portfolios, maintaining a preference for cyclical stocks,” it said.
“Sustained high growth and lower valuations should favour sectors such as financials and energy.
“A select portion of growth sectors show strong earnings resilience and can help diversify the equity basket.”
The firm was also cautious on China in light of the Evergrande crisis and was neutral on Asian emerging markets.
“Chinese regulatory headlines have given way to fears that Evergrande, China’s second-largest property developed by revenue, could collapse and create a systemic risk,” the firm said.
“We do not believe this is a major risk and that it will become a new Lehman Brothers, as financial exposure is limited and Chinese authorities will ensure contagion remains low.
“We are paying attention to the Chinese market where the regulatory crackdown and the Evergrande story have weighed on the market and could lead to attractive entry points.”