After taking a beating over the past few days, European equities should be well placed to take advantage of a rebound in world markets. Most specialists expect one, despite the instability of the past few days. In theory, all of the factors necessary for outperformance are in place: European stocks lag their worldwide counterparts, bond yields are still mostly negative on maturities up to five years – the lowest on the planet – and the economic outlook is favorable.
That said, with the German market relatively dear, bank stocks still suffering from low interest rates and many sectors well on their way to making up their lag, the range of attractive investments is limited. It’s not yet clear that Europe will fare better than the other regions of the world.
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1-Auto Industry 2-Capital Investment in France 3-Consumer Spending in Spain
Although there are still legitimate concerns about the future of the euro area, the recession is definitely over. Like all such episodes, this one comes with a number of pleasant surprises. Here are the three main ones:
• The first and most significant surprise from the investor standpoint is a recovery in Europe’s auto industry, along with improved stock performance for the firms involved.
• The second—and much more surprising—surprise is that the indicators we track on the French economy show a brighter outlook for industrial investment in France
• The third, and possibly most important surprise—given the risks that Spain’s sluggish economy pose for Europe as a whole—is that spending by Spanish consumers is clearly trending upward.
While none of these surprises taken alone has enough weight at this point to convince us to make any major changes to our growth forecasts, they each help restore a modicum of confidence—perhaps even with unexpected repercussions.