EUROPEAN EQUITY
Three-year sector performance
Source: FE Analytics( 31 Mar’ 13 to 31 Mar’ 16)
Three-year annualised return / volatility
SECTOR ANALYSIS
Europe small / mid-cap equity posted a 30 % return in US dollar terms over the threeyear period, outperforming other subsectors in its category. It had a particular strong run from Q4 2014 when European equities came back into vogue following the ECB’ s announcement to expand its stimulus measures. In contrast, Europe including UK equities underperformed. UK equities were held back by several country-specific events including the Scottish referendum of 2014 and more recently the EU referendum scheduled to take place in June 2016. Currency rates also dragged on fund performance as the US dollar stayed strong against the major European currencies over the period.
MARKET REVIEW
European equities started the period off well against an improved macroeconomic backdrop with peripheral Europe showing better reform prospects helping boost business confidence. At the same time, the ECB maintained its accommodative monetary policy stance to help combat deflation and spur growth. While a weak euro helped improve earnings prospects for European companies and drove equities higher, a weakening euro also turned the positive returns of 2014 and 2015 negative when we rebased performance into US dollars. In 2015, we saw a deterioration in Greece’ s ability and willingness to service its debts as well as the intensifying worries about China’ s slowdown hitting global investor sentiment. UK events such as the Scottish referendum of 2014 and the coming referendum on the UK leaving the EU, also weighed on markets.
MARKET OUTLOOK
European Equities are currently trading slightly above their long term historical average in terms of price-to-earnings, and pretty much in-line on price-to-book. While inflation continues to be mild in the Eurozone, the ECB is likely to maintain an accommodative monetary policy to help spur growth. On the other hand, the divergence between the European Central banks policy and that of the US Fed is likely to weigh on the euro. The possibility of a Brexit following the UK’ s EU referendum will no doubt further add uncertainties to both the EU and the UK markets and their respective currencies.
Source: FE Analytics( 31 Mar’ 13 to 31 Mar’ 16)
Provided by FE Advisory Asia as of 31 May’ 16