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Resurgent European equities continue to climb

According to data, the Stoxx Europe 600 Index has now reached 469.69, up from 449.29 on 19 July, meaning it has now more than recovered from when it plummeted to 294.04 in mid-March 2020.

According to Bloomberg, the increases are due to strong earnings reassuring investors about inflationary pressures along with rising cases of the delta variant. “Strategists,” it reported, “expect more market volatility in the coming months, just as equities head into a period that tends to be historically the weakest.”

The Bloomberg piece quoted Alfonso Benito, chief investment officer at Dunas Capital, as saying: “Earnings have been very positive in general. We now enter a very quiet period, with low volumes and central banks on holidays, so any news could have a big impact as we have seen in previous Augusts, when volatility has picked up.”

Individual events that were seen to have boosted the index were Axa SA reporting that its H1 profit more than doubled, while Parker-Hannifin Corp had agreed to take over Meggitt.

Nuanced view

The rise in equities has seen some investment houses advising to go overweight in the class. Writing for the Financial Times, Wei Li, a global chief investment strategist at Blackrock Investment Institute, said that the firm advocates, ‘[…] Investors take an overweight position in equities in their portfolios on a tactical, or six-to-12-month, horizon’.

However, Li said there was nuance in Blackrock’s assessment. “For instance,” he wrote, “we recently further upgraded European equities to overweight and shifted our positioning on US equities to neutral — to reflect the relative stages of those regions’ restarts. This shift represents a cyclical tilt. Within US equities, meanwhile, we favour companies able to grow their earnings and profits even amid rising costs. And we also believe there is room for equity sectors such as quality and growth, which underperformed earlier in the year, to catch up. By contrast, we are underweight nominal government bonds.”

Equities have largely been predicted to have a golden summer, according to Arnout van Rijn, chief investment officer Asia Pacific at Robeco, speaking to Expert Investor in July. He told this publication that while global money supply growth had been slowing, it was still abundant and central banks has done their best to convince investors they will not take the proverbial ‘punch bowl’ away from the current easy money party anytime soon.

Pete Carvill

Pete Carvill is a reporter, writer, and editor based in Berlin who has been writing for the B2B and mainstream media since 2007. He is a contributing writer for Expert Investor and, in addition, has...

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