attractive fundamentals are not enough to convince investors. The picture of what is happening on the stock markets of the Old Continent could be collected in this opening words. In a nutshell, the managers prefer to focus on more expensive markets but with high visibility of earnings (see Wall Street) rather than on price lists fundamental “economic” but prospects less clear (see Europe). The dynamic is perfectly summarized by the relative strength of Wall Street at the highest for at least a decade Eurostoxx 50 (the main blue chips in the euro area). An unusual situation objectively and that has few precedents.
The crux of the prospects
The question that lingers among insiders is one: if Wall Street begins to retreat, Europe alone will raise the head to make it so much
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advocated decoupling? The answer of course is no. And then to find out what will happen on the Old Continent lists always need a watchful eye on the United States. Having said that in Europe there is definitely a prospect deficit. Emblematic the meeting yesterday in Ventotene between Germany, Italy and France on the prospects of the Community institutions after Brexit. The market is assigning a large weight to the current political uncertainty and this is reflected in the stock market performance. The concern is certainly not far-fetched, but as pointed out by Victoria Leggett, European Equities Fund Manager of Union Bancaire Privée (UBP) in a hot off the press reports, “equities are not the economies and societies are not countries.”
Securities and sectors
European shares you access to global groups, leaders in their segments. “These companies – continues Leggett – are characterized by a generally excellent corporate governance, as a management team with experience and strong balance sheets. The index MSCI Europe offers a higher yield (dividend) 3.5%. It is rich in multinational companies such as Nestle, Unilever, Siemens, and other Ferrovial. The yield gap between the debt and the shares of these companies is extreme. “
In short, there are well-capitalized company that, despite the political and economic questions, offer sustainable cash flows and growing. “European stocks – Leggett concludes – in our opinion presents enormous opportunities. Also it is the only asset class that offers a dividend higher than the average of the last 30 years. “
When the clouds on the European prospects will be thinned out, the market probably will consider more carefully the flow of news. an analysis by Intermonte Advisory few weeks ago showed a good season of corporate quarterly both in the US and Europe. Given these dynamics, current levels, the price / earnings ratio of the main European indices is set to fall in 2017 showing very competitive levels. Going back to the last quarterly, between sub-funds, in the Old Continent, there are marked differences and if you do not take over significant developments this trend is likely to be protracted in the coming months. “The sectors that have reported better – explains Guglielmo Manetti, vice general manager of Intermonte Advisory – are also those that are performing better: industrial, construction, raw materials, technological materials. Year to date they are the best in Europe. On the other side they have done very bad banks and insurance companies. If nothing happens to relevant it is hard to think of a reversal in the short. I would keep an eye on as a possible surprise the telecom and the media, who are somewhat ‘erratic but may have a return of interest. “
The Italian factor
Italy weighs between 10-15% on European benchmarks, year to date leaves on the ground about 23% and is one of the worst stock markets as a performance. Today is definitely underweight in many portfolios. Managers await developments to understand how to move. “To become more constructive – continues Manetti – you have to understand if there is a final settlement to the capital increases of banks as MPS and Unicredit over the outcome of the referendum. If these two issues are resolved Milan can start again. In general, however, the uncertainty in Europe is a brake. In Italy the referendum node, in France the problem of terrorism and the election next year. To protect yourself from a possible setback better to focus on areas a bit ‘more defensive and high dividend. ”
Strategies
The theme of dividends seems a fair compromise that is widely acclaimed by the experts. With rates at zero on the bonds, the dividend represents a way to ride the stock with the coupon parachute but obviously the risk is always that of equity investment. And just on dividends from Europe come reassuring news. The Henderson Global Dividend Index Henderson GI, one observatory that monitors the performance of share coupons globally, shows that between April and June in general, Europe has registered encouraging growth over the previous year: two thirds of the dividends area were concentrated in the second quarter. France and the Netherlands are placed second and third in the world in terms of dividend growth. Finally, 80% of European companies confirms or increase dividends.
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