On the go: The eurozone stock markets could be set to outperform the US, UK and Japan, according to NN Investment Partners.
Weakness and recession in Europe have dampened the performance of Eurozone equities.
They are currently priced at a 20 per cent discount relative to US equities, which is more than twice the 8.8 per cent average discount of the past 20 years.
Commenting on the analysis, Patrick Moonen, principal strategist multi-asset, NN Investment Partners, said: “Weak macro figures do not bode well for the earnings outlook in the eurozone. The Q4 results were in line with expectations at 3 per cent sales and 2.6 per cent earnings growth, but these indicate some pressure on margins, especially in the cyclical sectors and financials. Manufacturing data also remains sluggish, influenced by the weakness in export demand.”
However, he noted that these figures are no longer a negative surprise for institutional investors, whereas the weakness being seen in the UK, US and Japan has been disappointing relative to expectations.
“While the fundamental outlook is weak for the eurozone, it has largely been priced in. Unless the weakness worsens, or has a more permanent character, the eurozone market could be up for a period of better relative performance,” Mr Moonen added.
But there is no shortage of political risks ahead, as Dr Alexander Boersch pointed out in an article for Deloitte’s website published on February 14. “Brexit is the biggest short-term risk for the eurozone, with effects that are difficult to foresee,” he wrote.
“Despite these risks and the worsening sentiment, the domestic drivers of the eurozone’s recovery – labour market performance and domestic demand – remain intact, while wages are finally rising. This suggests that if – and that is a big if – the political risks do not materialise and stop dragging company sentiment, there is no reason why the eurozone recovery should not continue.”
