Eq: Dev ex-US
US investors are growing increasingly interested in European equities. The reasons are many. Europe has undertaken huge levels of stimulus and its economy seems to be recovering from the pandemic more quickly than the US’. Further, the Stoxx Europe 600 is still down 10% on the year versus a 6% rise in the US, which means continental stocks may have more room for gains. Another interesting aspect to note is that the continent’s mix of equities has changed markedly over the years and is no longer dominated by banks. This means higher trending earnings and less volatility.
FINSUM: So you have an economy that might get out of recession faster than the US and returns that are 16 points behind, all with very accommodating monetary and fiscal policies. Investing in Europe makes sense!
Even though cases and deaths are still rising rapidly across the European continent, many governments within the EU are planning their re-opening from the Covid lockdown. Spain, Italy, Austria, and more are undertaking and/or announcing plans to reopen as soon as this coming Monday. The rollouts don’t look likely to be rapid anywhere, but their announcement may be received as an important turning point both socially and economically.
FINSUM: Markets are up big today and this is a significant part of it. Might the US start to re-open in a 2-3 weeks (?)—that is the question on investors’ minds.
New data on the EU economy has just come in and it isn’t pretty. Overall, the bloc grew just 01% in the fourth quarter, while Italy and France actually contracted. According to Commerzbank, “The spectre of recession is back … Economic growth in the eurozone came to a virtual standstill at the end of the year . . . The ECB is likely to view this with concern”. Ironically though, this may be positive for market as the ECB is likely to take an even more dovish approach.
FINSUM: It feels like we just did a time warp back to around 2013, when central banks were ready to stick to ZIRP for years. We all know how stocks performed then!
After three and a half years of chaos, it is finally going to happen—the British people are going to get a chance to vote on Brexit. No, it will not be in the form of a second referendum, but rather in the form of a general election. After fighting the option for months, the Labour party has been forced to give in to a general election that will pit Boris Johnson against Jeremy Corbyn, and likely decide the future of Brexit. No date has yet been set for the election, but it looks very likely to be in early December.
FINSUM: The trick of this election is that Brexit is probably going to happen no matter who wins because even top Labour leaders actually want the UK to leave.
In what can only be described as an act of both extreme patience—and hope for a better outcome—the EU has yet again agreed to extend the Brexit deadline from October 31st to January 31st following the big failure of Boris Johnson’s most recent deal in Parliament. The difference with this extension is that it has a caveat that if the EU and UK come to an agreement before January 31st, then the UK is free to leave in advance of the deadline.
FINSUM: The EU obviously wants the UK to leave on the best terms possible, and they are probably hoping Brexit gets completely reversed through an upcoming general election.
Well we are about three and a half years post-Brexit, and for most of that time, the situation only seemed to be getting worse. The UK was not only squabbling with the EU, but in the in-fighting in the UK was fevered. However, this week Boris Johnson has almost inexplicably agreed in principle to a deal with the EU. The big step from here is getting it approved by Parliaments on both sides.
FINSUM: All the details of this plan are not apparent yet, but that is frankly beside the point for a US investor. What matters here is that if the UK and EU can agree a deal, then markets will stop fretting about risk on that front.