Buyouts give Europe a boost

European equity markets have been the place to be in 2006, outperforming both Japan and North America. Why have they done so well? And - more importantly - can it last?

"For equity investors, Europe has been the place to be in 2006," says Tony Dolphin of Henderson Global Investors. "During the first three-quarters of the year, European equity markets, as measured by the Morgan Stanley Index, rose by 17% in US dollar terms." That's behind the emerging markets, but well ahead of North America and Japan. "And this is not just a flash in the pan." Over the last three years, the region has returned 77%, much more than other developed market regions, despite the lower growth rates of the eurozone countries.

So why have European markets done so well? One reason is that companies have become good at cutting costs, allowing them to "translate modest economic growth into strong profit growth", says Dolphin. And the "de-equitisation" phenomenon has also helped significantly, says John Authers in the FT. The low cost of debt financing has led to a boom in buyouts and share buybacks. The result: a lot of companies have left the market and the valuations of those that remain have risen.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
MoneyWeek

MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.