ABN Amro Private Banking is taking profits on its US equities allocation, which has been overweight since July 2011, while increasing its position on European equities to neutral.

In other calls, companies that benefit from falling gas prices will be an important investment theme in the next quarter, the firm says in an investment note.

The Dutch firm names firms such as Saipem, Woodside Petroleum, Fluor Corp, Kinder Morgan, NextEra, General Electric, Alstom, International Paper, Lyondell Basell NV, BASF and Agrium as likely beneficiaries.

In its outlook for the second quarter, the private bank says it expects a gradual manufacturing recovery and recommends investors to stock up on industrial equities.

The bank’s optimism stems from the improved investment climate seen since the start of the year, and due to this it has actively substituted cash holdings for equities – a reduction of almost half of the cash position within the bank's balanced model portfolios. The cash allocation is now 18 per cent, compared to 34 per cent for bonds, 40 per cent equities and 8 per cent alternatives.  

Didier Duret, chief investment officer of ABN AMRO Private Banking, says in the outlook that the upside for equities has not been exhausted because of the current rally.

“Valuations are historically low and many investors remain underinvested,” Duret says. “For equities to move higher, they need to demonstrate the inner driving forces of earnings generation and sales growth.”

The greenback still king

One of the regions the firm is eyeing is Asia, where the bank is particularly keen on China, Indonesia and Malaysia. The bank’s Hong Kong-based head of emerging market bonds, Carman Wong, thinks Asian corporate bonds are more attractive than their peers in developed markets. “In addition to macro-economic positives, we expect Asian corporate bonds will attract large flows due to demand for saving instruments in Asia and effective diversification for foreign investors,” she says.

In terms of currencies, ABN Amro favors the US dollar primarily but also Scandinavian currencies. The bank sees commodity-based and emerging market currencies as expensive, and is underweight commodities because of uncertainty surrounding the oil price. ABN Amro predicts the oil price to average roughly $110/barrel during the second quarter.