2018 Outlook: Plenty of scope for active managers to add value

We expect healthy domestic fundamentals to enhance the performance of European equities over the long term

Dec 1, 2017 | Jeffrey Taylor

Europe is a rich, highly developed part of the world which is home to a vast range of companies. However, on occasion it still seems to struggle to attract attention from serious investors around the world. There’s always a handy excuse: “Why bother when it’s only a play on more interesting parts of the world?” or “There’s never any earnings growth, is there?” or “Don’t the politics make it un-investable?” Wrong.

The drivers behind the Eurozone economy are now predominantly domestic. This is a fundamental break from the recent past when growth was dependent on exports to faster growing parts of the world. Europe’s recovery from the crisis years kicked in later than in the US, but is now firmly on track thanks to a steady, expectation-busting pickup in private consumption and (more recently) investment. Banks are lending again and unemployment is falling. A domestic demand-led recovery is far harder to stop in its tracks than one based on exporting your way out of trouble. This means Europe should be better able to cope with exchange rate fluctuations. It also has major ramifications for the kind of stocks we want to own.


To continue reading, click Download PDF