Europe
Equity Market
Review & Outlook
Figure 10
Major European Stock Markets YTD to October 2013
European markets out-performs U.S equities.
European equity markets posted strong positive returns
over the last six months. Relative calm on the political front
along with better-than-expected macroeconomic data boosted
equity markets outperforming its U.S. and other developed
market counterparts. Benchmark gauges, the Stoxx Europe
600 Index and the MSCI Europe Index generated 6-month
total returns of 14.20% and 13.70% respectively surpassing
the U.S. S&P 500 gain of 11.14% and the MXEA measure of
developed market’s return of 8.92%.
Figure 9
Total returns for equity benchmarks - 6 month & YTD*
*6-month returns: May – October 2013, YTD: as at 31 October 2013
Following six consecutive quarters of contraction, the
European region emerged from recession during the second
quarter of 2013 with a growth rate of 0.3%. The European
Central Bank maintained interest rates at 0.5% for most of
the review period, but cut rates to 0.25% in early November,
in line with recent statements by the ECB President to keep
rates unchanged or lower for an extended period of time.
It was a period of relative political calm for the Eurozone
despite the initial focus on Germany’s election and
resignations of the Portugal Foreign and Finance Ministers in
July. Fears were reassured with the reinforcement of support
for the coalition government by Portugal’s President. Angela
Merkel’s reelection in Germany’s elections also calmed the
market. The positive news helped European stocks to rise
with equity return in Europe’s three largest economies, the
UK, Germany and France.
Source: Bloomberg, First Citizens Research and Analytics
In the UK, the FTSE 100 Index returned 6.9% over the
period supported by the dual impact of rising economic
confidence along with strong company balance sheets,
which are benefiting investors in the form of attractive and
rising dividends. Supported by two consecutive periods of
growth and data releases over the review period pointing to
broad‑based improvement, the UK economy appears to be on
the mend. All industrial groups contributed to the expansion
and the business services sector is almost back to pre-2008
Levels. The construction and manufacturing sectors showed
improvement over the period but are still below peak.
Over in Germany the DAX crossed the 9,000 mark in
late October, ending the period at 9,033.92 with a positive
6-month return of 14.2% and a year to date total return of
18.7%. The index rebounded from lows in June-July following
anticipation around tapering decision in the U.S, with the
election victory for leader Angela Merkel in September. The
re-election provided some much needed indication of stability
for Europe’s biggest economy, with the markets comforted
by the fact that there was no major changes to the statusquo in Germany. Furthermore, shares rose on data that the
Eurozone’s manufacturing sectors was growing at its fastest
in 2 years. Despite the ongoing crisis in Europe, German
companies are recognized as international market leaders in
many export sectors. They are considered innovative, efficient
and solidly financed c