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Our Equity Top Pick List
We have updated our Equity Top Pick List to reflect the events of the past quarter. The list includes those stocks, typically US and European ones, that we consider to be proper investment choices from a fundamental point of view. It can provide a starting point for building a sector-diversified equity exposure in portfolios, but can also be used as a watch list. Technical analysis should be used to time / determine the specific investment decision.
Could the momentum return in the semiconductors?
The semiconductor sector has had a challenging quarter, with its performance in recent months lagging behind improvements in underlying fundamentals, even as AI-driven demand remained exceptionally strong. The accelerating adoption of AI by enterprises and the proliferation of AI agents are significantly increasing the demand for computing capacity, which points to a further surge in cloud services and data center investments. Given current supply constraints, record-high backlogs, and higher-than-expected investment needs, we expect further upward revisions to earnings forecasts in the semiconductor industry. Nevertheless, the sector’s valuation appears favorable from a historical perspective, which, in our view, could result in a more attractive risk-return profile in the coming months.
In the short term, the negative impact of tariffs coupled with elevated valuation levels, have increased the risk of a mild correction. However, as the threat of recession is moderate, the fiscal and monetary policy are supportive, commercial bank lending is improving, we would maintain neutral equity exposure and look for buying opportunities during corrections.
Macro
US growth got slower, but less, than expected, and as fiscal policy remains loose and interest rates will be cut further, a drastic slowdown looks less likely. The eurozone economy will manage a soft landing in H2, and growth could reaccelerate by the end of 2026. In Europe, headline inflation is back on target, but in the US, inflation is diverging from the target, and tariffs will drive it further up. ECB’s rate cutting cycle has ended at the neutral level of 2%, in case of the Fed, the priced in rate trajectory looks to be overly optimistic. Hungarian GDP growth could reach 0.6% in 2025 and ~3% in 2026, thanks to a large fiscal stimulus, which may push the deficit above 5% next year. In 2026, inflation may return back to the target level, however risks are tilted to the upside. The market expects 75-100 bps rate cuts by the MNB, but we think 6.5% will be kept for longer. Till December, HUF long positions looks to be more attractive, however after the last rating action in December this could change due to election risks.
Equities
In the short term, the negative impact of tariffs coupled with elevated valuation levels, have increased the risk of a mild correction. However, as the threat of recession is moderate, the fiscal and monetary policy are supportive, commercial bank lending is improving, we would maintain neutral equity exposure and look for buying opportunities during corrections. Although the US market is the most expensive, profit dynamics are strong, so we do not expect a sustained downturn. Encouraging developments are emerging in Europe, but there are still obstacles to overcome, which prevents outperformance. The weakening of the dollar and the Fed's interest rate cut are tailwinds for EM, but they are no longer cheap, and profit momentum is deteriorating. Although CEE related risks are increasing, investors are still compensated by the depressed valuations.
Bonds
As there are no signs of recession in either America or Europe, we recommend choosing the short/medium end of the yield curve in developed countries due to high budget deficits, rising debt trajectories, and political pressure on the Fed. We do not consider corporate bonds attractive due to narrow bond spreads.
Commodities
We maintain an overall neutral view on commodities due to various uncertainties surrounding the global economic outlook from US labor market to Chinese growth prospects. Several markedly different outcomes are possible, hence some caution is warranted. We recommend selective exposure (e.g., gold, copper, uranium).
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