Europe: offering a “decent bet” for next year

Around $50bn worth of equity investment has flowed out of the eurozone since January. But sellers have been harsh and Europe may offer a decent bet for 2019.

921_MW_P06_markets_bottom

Greece: a ray of light in eurozone data

Emerging markets may have hogged the negative headlines in 2018, but investors' bite has been felt "most keenly" in Europe, says Lex in the Financial Times. The rapid equity outflow has been "striking", with $50bn flowing out of the eurozone since January. At the end of October, the pan-European Stoxx Europe 600 index had slipped by 12% from January's peak. The Euro Stoxx 50 index of the eurozone's 50 biggest equities was down by 15%.

The single currency area's unexpectedly strong expansion in 2017 gave rise to the notion of a "synchronised global recovery", which in turn helped fuel the global bull run last year, says John Authers on Bloomberg. But this "increasingly appears to have been a mirage". In the third quarter of this year Europe had the worst earnings season in four years, according to Morgan Stanley, with particular weakness in consumer discretionary, industrials and materials sectors. The latest manufacturing surveys showed declines across Europe, notes Authers.

Italy has crossed the threshold from expansion to contraction, and the only ray of light is that Greece now has "a healthier anufacturing sector than any of the four biggest eurozone economies". The reason Europe enjoyed a "recovery" last year was because domestic demand caught up after years of austerity, says Jean Ergas, chief economist of Tigress Financial Partners. Any lasting expansion will need to survive the political risks posed by Italy.

But sellers may have been "harsh", says Lex. European companies trade nearly "a tenth below their 30-year average" on a forwardprice-earnings multiple of 13 times. The region's dividend yield of 3.5% also looks appealing. "For contrarians, Europe offers a decent bet for next year".

Recommended

Stockmarkets shrug off turbulence
Stockmarkets

Stockmarkets shrug off turbulence

Stockmarkets have hit their first bout of turbulence of the year, but most are clinging onto January’s gains.
4 Feb 2021
The MoneyWeek Podcast: how to not lose money to inflation and financial repression
Investment strategy

The MoneyWeek Podcast: how to not lose money to inflation and financial repression

Merryn talks to Peter Spiller of the Capital Gearing Trust about how he navigated the last extraordinary year; what he's buying now; and how he plans …
16 Apr 2021
UK mid-cap stocks look forward to life after lockdown
UK stockmarkets

UK mid-cap stocks look forward to life after lockdown

The FTSE 250 hit an all-time high at the end of last week, as investors look to a post-lockdown recovery.
16 Apr 2021
Why you should expect another stockmarket crash
Stockmarkets

Why you should expect another stockmarket crash

Many fear inflation, but a deflationary debt collapse is a more likely scenario in the near term, says Tim Lee
16 Apr 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
What does the Coinbase listing mean for bitcoin and other cryptocurrencies?
Bitcoin

What does the Coinbase listing mean for bitcoin and other cryptocurrencies?

As the bitcoin price hit new highs, the world's biggest cryptocurrency exchange, Coinbase, listed on the stockmarket. John Stepek looks at what that m…
15 Apr 2021
Lab-grown meat: the new agricultural revolution
Soft commodities

Lab-grown meat: the new agricultural revolution

Vegan alternatives are taking off, but the future of food technology lies in lab-grown meat – cultivating steaks and burgers from animal cells, says A…
16 Apr 2021