European stocks have room to run

The eurozone expanded at an annualised rate of 1.5% in the three months to April, and European stocks have enjoyed a robust bounce. But there's room for more growth.

946_MW_P05_Markets

Spain is leading Europe's revival

"Boom!" proclaims Graeme Wearden in The Guardian. The eurozone expanded at an annualised rate of 1.5% in the three months to April, up from 0.9% in the final quarter of last year. Spain led the way with 0.7% quarter-on-quarter growth, while Italy exited recession and French growth held steady.

The numbers are not spectacular, says Paul Hannon in The Wall Street Journal. Yet they do suggest that the single currency area is regaining momentum after a weak 2018. Other indicators are also flashing green, adds Nick Andrews for Gavekal research. Real M1 money supply growth, a leading indicator for GDP, bottomed in late 2018 and is now accelerating again: "a eurozone recession is unlikely this year" and growth may pick up in 2020.

European stocks: a contrarian's playground

The euro's sluggish performance against the dollar partly explains the money exodus, says Avantika Chilkoti in The Wall Street Journal. The single currency recently slipped to a 22-month low against the greenback, which suppresses returns for US-based investors. Yet a weaker currency is good news for exporters about 45% of the bloc's GDP comes from exports, a considerably higher percentage than in the US and Britain and may help mitigate the effects of worsening trade tension.

Things are also looking up on the domestic front, notes Wearden. Unemployment has hit a ten-year low. At 7.7% in March the eurozone's jobless rate is now the lowest since the financial crisis. In Germany unemployment in April held steady at a 30-year-low. That should support wage growth and stronger consumption.

"Buoyant" corporate results should help sentiment too, says Bloomberg. About half of European firms reporting first quarter results beat expectations, with robust sales running the gamut from brewer Carlsberg to luxury giant LVMH. The Sentix research group reports that eurozone investor morale has risen to its highest reading since last November.

The Stoxx Europe 600 index is also on 14 times forecast earnings, compared to 17 times for the S&P 500, says Chilkoti. That valuation gap is "substantially wider than its long-term average". One way to play a bounce is the Fidelity European Values trust (LSE: FEV). It is on a 10% discount to net asset value (NAV).

Recommended

Rob Arnott: Covid's hidden investment opportunities
Investment strategy

Rob Arnott: Covid's hidden investment opportunities

Merryn talks to Rob Arnott of Research Affiliates about some of the unexpected consequences of Covid and their opportunities for investors, plus the "…
24 Sep 2021
Evergrande: Chinese property giant spooks global markets
China stockmarkets

Evergrande: Chinese property giant spooks global markets

Global markets fell this week as investors worried about the fate of Evergrande, China’s most indebted property developer, which is teetering on the b…
24 Sep 2021
Investing in football clubs: how you can profit from the beautiful game
Share tips

Investing in football clubs: how you can profit from the beautiful game

Football clubs may often be money pits for oligarchs, but they are also huge global brands, says John Chambers – and investors are now starting to rec…
24 Sep 2021
The US Federal Reserve is about to rein in its money-printing – what does that mean for markets?
US Economy

The US Federal Reserve is about to rein in its money-printing – what does that mean for markets?

America’s central bank is talking surprisingly tough about tightening monetary policy. And it’s not the only one. John Stepek looks at what it all mea…
23 Sep 2021

Most Popular

Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021
The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021