European equities could “finally” outperform in 2017

2017 could be the year that European equities finally outperform, said Steven Bell, chief economist at BMO Global Asset Management, amid growing positive sentiment for the region’s economy and markets.

He said Europe had been “doing surprisingly well” and added that Europe was the strongest major region in the world on the Citi Group Index of economic surprises.

The positive outlook for European equities contrasts with emerging markets, he writes in a summary for investors.

“The prospects for emerging markets remain difficult as dollar strength and rising rates outweigh the benefits of better growth. But 2017 might be the year in which European equities finally outperform, ending half a decade of disappointment.”

2017 could see some modest fiscal expansion in Italy and potentially France, said Bell, and he added that the likelihood of an election victory by France’s Marine Le Pen, leader of the National Front,. “looks relatively low”.

Niall Gallagher, investment director for European equities at Swiss asset manager, GAM, also said in a 2017 outlook this week: “The French presidential election is the key event for us. An election of Francois Fillon [of the centre-right Republicans] to the French presidency has the potential to finally see some long-needed structural change to the economy.”

Any move to “reduce the burden of taxation, roll back the frontiers of the state and make life easier for entrepreneurs and wealth creators has the potential to ignite animal spirits and increase economic growth” in France, he added.

Meanwhile, expectations for better European growth has seen Bank of America Merril Lynch raise its 2017 earnings growth forecast for the region’s equities, from 7-8% to 11%, and 8% for next year.

“If achieved, 2017-18 would be the best years for European earnings since the GFC [global financial crisis],” the broker said.

A weaker euro and strong commodity prices were also factors in the decision.

©2017 funds europe