The European equity markets remain in a celebratory mood. Driven by solid economic data and signs of improving consumer confidence, the leading STOXX 600 index has recorded robust price gains of around 9% since the beginning of the year (as of May 12, 2017). The country indices for Spain (+17%), Italy (+12%) and France (+11%) have registered particularly strong gains, reflecting increased risk appetite among investors.
The socially liberal and pro-Europe Emmanuel Macron won against the far-right candidate Marine Le Pen. It must now be demonstrated how the new French president will promote the necessary structural reforms in “La Grande Nation” that also depend on the parliamentary elections in June. For the time being, it appears that a potential emergence of nationalistic forces in the old continent has lost part of its horror, which is received favorably by equity markets.
However, we regard the following two factors as being more important for the performance of European stocks. First: on the back of rising economic activity, companies are likely to see their profits grow again in 2017, for the first time in five years. Second: from a global perspective European equities appear to have relatively attractive valuations, particularly compared to US stocks. Thus, the inflows in evidence will likely give further support to the market. Temporary price setbacks should be used to make purchases.
This article by Ralf Piersig (LGT Capital Partners) and other expert views on trends and developments in the financial markets you find in the latest LGT Investorama magazine (PDF)