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

More about SMID caps

ANNISS_CHARLES_15.jpg

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

 

Expertise

Impact investing - Contributing to a more sustainable future

What are the key features of impact investing?

Read more

Most read

Insight 01.10.2020

COVID-19: UBP keeps you up to date

Since this coronavirus appeared, UBP has provided its clients with guidance and support as we all tackle this unprecedented global health crisis. We give you regular updates on everything from our own safety protocols and the recommendations issued by the authorities to our experts’ latest analysis on the effects of the pandemic on the world economy and financial markets.

Insight 30.06.2020

UBP Investment Outlook 2020 Reset

The Global Economy at the Crossroads

Insight 24.06.2020

Market turmoil brings new opportunities for pragmatic investors

March 2020 was difficult time for many investors, as COVID-19 spread across Europe and the US, leading to sharp sell-offs in fixed-income credit markets. While such market turbulence is not to be welcomed, its occurrence can create opportunities.

Further reading

Insight 23.10.2020

Podcast - No election rally for the dollar

Our Global Head of Forex Strategy, Peter Kinsella, shares his thoughts on the forthcoming US presidential election.

Insight 15.10.2020

The draw of the booming fintech sector

Martin Moeller, Portfolio Manager of our newly launched strategy, shares his view on why global fintech equities are an interesting investment right now.

Insight 05.10.2020

Webinar – Opportunities in the Gold Mining Sector

On Thursday 1 October 2020, UBP's experts Norman Villamin and Peter Kinsella hosted a webinar with Evy Hambro, Global Head of Thematic and Sector Investing at Blackrock, to discuss what gold investors can expect in the quarters ahead.