1. Newsroom
  2. “The stockmarket correction is over in Europe”
Menu
Analysen 12.10.2017

“The stockmarket correction is over in Europe”

“The stockmarket correction is over in Europe”

After consolidating during the summer months, equity indexes resumed their upward trend last month. However, now is still a good time to take fresh positions in European equity markets, and particularly in the small- and mid-cap segment.


Equity markets went through a period of consolidation between mid-May and late August: the MSCI Europe index lost more than 5% and the MSCI Europe Small Cap Index almost 4%. Although the quarterly earnings season did not produce any nasty surprises, volatility increased because of geopolitical tension relating in particular to the diplomatic crisis between the USA and North Korea. The euro’s rally against the dollar was also bad news for European exporters. This explains the greater resilience shown by European small and mid-caps during the summer, since they have less international exposure than large caps

The summer correction followed a rally of more than 10% in the major European indexes since the start of the year. However, the macroeconomic environment remains very positive in Europe. PMIs and Germany’s IfO index remain buoyant, while the economic situation is improving in France and Italy, suggesting that the eurozone economy will continue growing. Investor concerns regarding political risk have also faded since Emmanuel Macron was elected President in France. More recently, Angela Merkel’s re-election as German Chancellor ensures that European policy will remain stable.

Small and mid -caps more cyclical than defensive

As a result, the recent consolidation in equity markets is now over. The major stock market indexes are likely to resume their rally, but the context is particularly positive for small- and mid-cap indexes.

Recent current moves should continue to benefit small and mid-caps, which have a greater exposure to their domestic European markets.

In addition, cyclical and industrial stocks have been in favour since the end of the summer, and mid-caps generally have a more cyclical profile than their large-cap counterparts. As a result, the end of the summer consolidation is a good opportunity to take fresh positions in the small- and mid-cap segment. In addition, small and mid-caps operate in niche markets and are therefore less exposed to the vagaries of the global economy.

France is one of the European countries currently showing the best investment opportunities in the small- and mid-cap segment. Its economy is growing at a good rate, with GDP expected to increase 1.7% in 2017, and the pace should remain firm next year. Certain Spanish and Irish stocks are also attractive.

Mehr zu SMID Caps

ANNISS_CHARLES_15.jpg

Charlie Anniss
Small- and Mid-Cap Portfolio Manager, European Equities team

 

Meistgelesene News

Analysen 25.07.2019

Navigating wealth succession in Asian families

Wealth succession is complex, emotional and can be costly if not managed properly

Analysen 11.07.2019

Turning up the fiscal tap

In the prolonged global quantitative easing era, should the fiscal tap be turned up ? With monetary policy having basically run to its limit, fiscal stimulus through modest budget deficit can be sustained for a longer period.

Analysen 12.06.2019

Navigating through an ageing economic cycle

A market backdrop favourable to convertible bonds

Auch lesenswert

Analysen 18.10.2019

China-US Trade Deal: Positive in the Near Term

On October 11, China and the US have agreed to work towards a partial trade deal. US President Donald Trump called it ‘Phase One’, with subsequent phases to deal with broader and fundamental issues.

Analysen 16.10.2019

Demographics: a broad and long- term opportunity set

Secular trends encompass thematic opportunities with the potential to have a material effect on the world and financial landscapes with long-term and lasting effects.

Analysen 14.10.2019

Convertible bonds add convexity to your portfolio

Amid volatile markets and concerns over the global economic outlook, how can investors mitigate the risk of capital loss while keeping the door open to capital gains? The answer lies in convertible bonds strategies, given the specific risk-return profile of this asset class.