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 19.02.2020

Changes in consumption patterns

Despite being fast-moving and quite unpredictable, changes in consumption patterns are expected to reshape the economic landscape.

Insight 15.04.2020

The Case For Frontier Debt

Fixed-income frontier markets have seen significant growth in both importance and liquidity over the past decade. While still mainly thought of as part of global EM investments, frontier markets have “grown up” and deserve to be considered separately.

Insight 22.04.2020

Impact Report 2019: an eventful year

UBP is proud to release the second edition of its Impact Report.

Further reading

Insight 31.07.2020

Gold/Silver: the early stages of a long-term bull market

Spotlight - Despite the impressive 30% rally for gold and 70% rally in silver from the March lows, the precious metals are likely still in the early stages of a long-cycle bull market.

Insight 29.07.2020

Podcast - The beginning of the USD bear market

Our Global Head of Forex Strategy, Peter Kinsella, shares his outlook for the US dollar for the months ahead.

Insight 28.07.2020

Webinar – The strategic case for gold

On Friday 24 July 2020, UBP's experts Norman Villamin and Peter Kinsella hosted a webinar with John Reade, Chief Market Strategist at the World Gold Council, to discuss the constructive environment for gold.