Summary of European Equity Strategy Conference Call Industry Overview - The focus is on the European equity market, particularly in the context of potential recession risks and sector performance. Key Points and Arguments Market Outlook - European equities are currently trading in line with long-term cycle average multiples, indicating limited pricing of recession risks [2] - Analysis suggests that European equities have only "travelled" about one-third to half of the way towards pricing a moderate recession or material growth slowdown [2] - The risk-reward scenario remains negative, with a projected downside of -7% to a moderate bear case and -22% to a full bear case [2] Defensive Investment Strategy - A recommendation to shift investments into defensive sectors with relative earnings resilience, such as Defence, Utilities, Software, and Telecoms [4] - German defence companies, particularly Rheinmetall, are highlighted as top picks due to their fundamental resilience [4] Sector Analysis - Defence, Life Sciences, and Software sectors show positive exposure to Trump administration policies, while Semiconductors, Materials & Mining, and Autos are identified as more cyclical and risky [5][8] - Utilities and Telecoms are categorized as the most defensive sectors, with Software and Defence also showing resilience [16] Earnings Expectations - Analysts expect a skew towards downside in upcoming earnings results, particularly for cyclical stocks, with previews indicating that 40 stocks may miss earnings expectations [9] - Key stocks expected to beat earnings include Siemens Energy, Euronext, SocGen, AstraZeneca, and Accor, with a notable concentration in the banking sector [9] Pricing Power and Exposure - Defence, Software, and Semiconductors are noted for having the highest pricing power in the current environment [4][23] - A detailed analysis of stock-level cyclicality, pricing power, and exposure to Trump administration policies was conducted across approximately 550 companies [3][14] Risk Areas - Key areas of downside risk include Semiconductors, Materials & Mining, Construction & Materials, Transport, and Autos, which are considered highly cyclical [5] - The analysis also incorporates exposure to China and the US, with lower exposure preferred for resilience [14][26] Conclusion - The current market environment necessitates a more sophisticated approach to identifying defensives and cyclicals, moving beyond traditional measures [3][14] - The focus should remain on fundamentally resilient sectors while being cautious of valuation levels due to potential earnings downturns, especially in cyclical areas [15] Additional Important Insights - The analysis emphasizes the importance of understanding the interplay between sector performance, macroeconomic factors, and geopolitical influences, particularly regarding US policies and China exposure [3][14][26] - The report includes various exhibits that provide visual data on sector cyclicality, pricing power, and exposure to external factors, aiding in investment decision-making [16][21][23]