European markets ready to play catch-up.

 

European equities (and Japan) have massively underperformed US equities in recent years especially for USD based investors . Not only equities return were poor but currency performance was very weak : – 33% for the EUR against USD  since 2008  (-31% since 2011 for the Yen).

Situation has started to evolve since early 2016 with SP500 underperforming Eurostoxx 50 :6.53% vs 8.84 %. Main  explaining factors are:

1/ Economic recovery in Europe is gathering pace  while some data out of US economy are a bit more on the negative side.

2/ European markets priced (and still partially do ) the risk of populist parties to win major elections with the attached questions about EURO survival. This risk has been reduced with Macron win in first round election in France .

3/ The much cheaper valuation of European equities compared to their US counterparts.

4/ Catch up potential (See Chart Below)  and rising interests from US investors seeing risk on their own market and opportunities in others .

 

Source : The Bespoke IG