Expected earnings growth remains supportive

Of european equities with high single-digit projections

The European equity markets performed well in November, though not as strongly as in October, which was clearly an exceptionally strong month. This is particularly the case for the euro zone markets, as the UK somewhat lagged the rest of the continent.

This is not surprising, as the key explanation behind rising stock indices, namely the rising expectations of further easing measures by the ECB, is purely euro zone-related.

The European markets proved resilient following the Paris terrorist attacks. Fears of lower economic growth in Europe due to those attacks, or to other factors, were in fact rapidly offset by rising expectations of further easing measures by the ECB, which, in turn propelled risky assets, like equities, higher. Those hopes joined forces with the FOMC meeting minutes (which clearly pointed towards the Fed raising its rates quickly) to further strengthen the USD vs. the EUR. Unsurprisingly, this movement proved to be another major support measure for euro zone equities. The continued sharp downward movement in the oil price over the course of November also boosted European shares.

• We have increased the beta in all our main portfolios and will use any market opportunities to further increase our cyclical stance.
• We have reduced all sectoral and style biases.
• We remain positive on the Consumer Discretionary sector, even after the Paris terrorist attacks. This segment could suffer temporarily, but fundamentals are healthy.
• We have become really negative on Industrials as stocks are expensive and organic growth is lacking. The capex outlook is also unfavourable (Energy, Metals & Mining).
• In the Financials sector, as regulation threats are easing, we have increased our positions in KBC and HSBC, while maintaining our positive view on Asset Managers (Azimut) and Real Estate.
• In the Health Care sector, valuations are attractive and the pipeline for most companies is robust. Even with pricing pressure from the US, we continue to focus on healthy and innovative companies. This sector is also under-owned by investors.
• The Energy sector recently received bad news from OPEC, as, following the last summit, oil producers hadn’t reached an agreement to cut production. But the segment also remains under-owned.
• We are negative on Telecoms as valuations remain a drag.
• We are strongly positive on European equities and the markets should go upwards at least until spring. Market growth will be based more on valuations than on flow.