Quality should be the focus. Sels told CNBC last week that if you're looking for a style bias, you should look at the quality difference between Europe and the U.S.
I would caution against buying Europe because of the cheaper valuations and interest because I don't think that clients and investors should be looking at the geographical allocation on the basis of style.
Analysts expect earnings downgrades to dominate in the short term as earnings season kicks off next month. Central banks are committed to raising interest rates to fight inflation while acknowledging that this may cause economic trouble.
"We see an economic slowdown, higher-for-longer inflationary pressures, and greater public and private spending to address the short-term consequences and long-term causes of the energy crisis," said the co-CIO at Blackrock.
According to the fourth-quarter outlook report published Wednesday, stock pickers will have to identify businesses that will help provide solutions to rising prices and rates if they want to take advantage of valuation divergences.
The case for buying bank stocks has strengthened over the last quarter as hotter-than- expected inflation reports exert further pressure on central banks to raise interest rates aggressively.
Prior to the invasion of Ukraine, Europe relied on Russian imports for 40% of its natural gas, and now it is racing to find a new supplier. This need was made worse by the cut off of gas flows to Europe from Russia.
The easiest way to mitigate the impact of gas shortages on portfolios is to be aware of the companies with high energy bills as a percentage of income.
The energy needs of the European chemical industry were more than 50 million barrels of oil. Less than 1% of the power comes from renewable sources.
Larger companies may be able to weather a gas shortage by hedging their energy costs. It is important that rising costs are passed on to consumers.
Smaller companies may struggle if they don't have the sophisticated hedging techniques.
"We have to be especially careful when companies that may seem attractive because they are defensive, and have historically generated cash despite slow economic growth, have a large exposure to gas prices."
It's difficult for investors to be confident in near-term earnings if energy costs are not hedged.
Companies in Europe with globally diversified operations that shield them from the impact of the gas crisis will fare better than those with less access to Nordic energy supplies, according to the report.
In the event that price increases fail to temper gas demand and rationing becomes necessary, companies in strategically important industries will be allowed to run at full capacity.
In our opinion, supply-side reform is necessary to tackle inflation. Spending on renewable energy projects is what this means.
It also means companies will have to spend more to address rising labor costs. If inflation stays high, companies that help other companies keep costs low will benefit.
There are opportunities in automation that reduce labor costs, as well as those involved in the renewable energy transition. The electric vehicle boom was projected to cause soaring demand for raw materials such as copper.
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