Since the start of the year, investors have had an optimistic outlook about the European stocks and now money managers are joining the bandwagon.
Fund Managers Cautiously Warm Up To Promising European Stocks
Strategists in major banks including BNP Paribas SA and JP Morgan Chase & Co always conveyed positive sentiments over the value of European companies and others in the finance industry are coming to terms with the possibility.
Money managers have largely avoided the region for most of last year. However, investors are now slowly warming up to add to Europe’s funds.
In the last six weeks, inflows toward European funds increased, according to notes of Merrill Lynch by Bank of America base on EPFR Global data. At the same time, the Stoxx Europe 600 Index rose 0.9 percent this month, its second consecutive monthly gain.
The market reversal so far is not very significant with a net inflow of $1.3 billion in 2017. Nevertheless, this trend comes at a time when research on the sell side in the region is increasingly optimistic as the price-to-earnings ratio on the Stoxx 600 closes some of it discounts to counterparts in the US
Even so, the trend coincides with sell-side research on the region’s shares becoming increasingly positive, even as the Stoxx 600’s price-to-earnings ratio is closing some of its discount to its U.S. counterparts.
The equity market in Europe is certainly improving for the first time in a year and a half, European companies enjoyed profit growth at a higher pace than companies in the US did in the fourth quarter.
At the same time, the weakening of the euro by more than five percent against the dollar has benefitted exporters.
According to Guillermo Hernandez Sampere, head of trading at German based MPPM EK, “Markets seem to have accepted a higher price-to-earnings ratio which signals an optimistic outlook.”
Year-end forecasts for Stoxx 600, climbed in March by 378, which is an equivalent of 1.2 percent increase in 2017.
Fund managers including JP Morgan Asset Management and Goldman Sachs Group have projected that returns on European stocks may exceed their US counterparts this year.
However, European shares are markedly cheaper than those of their US counterparts are when profit multiples are considered.
According to Pascale Auclair, head of investments and managing director at La Francaise, “We could see a relief rally at the end of the elections in France.”
Analysts see the surprise election of populist and euro-skeptic presidential candidate Marine Le Pen as something that could dampen the cautiously optimistic sentiments.