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

 

Asset class

Japanese equities

Why the current outlook makes a compelling case for Japanese equities

Watch the videos

Meistgelesene News

Analysen 13.12.2018

UBP Ausblick 2019

Uneinheitliche Konjunkturentwicklungen – Chancen und Risiken für Anleger

Analysen 13.11.2018

A bear market in crude oil: how long will it last?

Spotlight - The tailwind of tight supply that characterised the oil market in 2017 has receded in 2018.

Analysen 30.10.2018

China policy easing measured but more extensive

Opening domestic market further is a welcome move but may not fully address Trump’s demands on China to resolve the trade war.

Auch lesenswert

Analysen 16.04.2019

A Fresh Look at Japanese Equities

Making the case for Japanese equities

Analysen 11.04.2019

Look for global growth concerns to fade

Spotlight - Signs of a reduction in current worries about recession or in the downside risks to today’s modest earnings expectations are needed as a catalyst to support the next sustainable leg of equity market returns.

Analysen 05.04.2019

Swiss small and mid-cap equities update

Diversified & High quality growth