Tristan Hanson, manager of the M&G Global Target Return fund, suggests sentiment towards European equities has improved “dramatically” in recent months driven by strong economic growth and thanks also to a belief major political risks have “diminished”, citing the victory for Emmanuel Macron in the French elections earlier in the year.
Even at the start of 2017, investors were nervous about the run of political events and elections still to come across Europe, in which the threat of populist parties was on the rise.
However, one of the key election outcomes was that of the French election, which resulted in a strong win for the centrist candidate Mr Macron.
“The risk of a systemic crisis in Europe has diminished substantially in the eyes of investors, which explains the very muted overall market reaction to recent developments in Catalonia,” Mr Hanson adds.
“Meanwhile, the profits delivery of European companies has been strong this year and equity valuations are attractive relative to bonds or negative deposit rates.”
David Stubbs, at JP Morgan Private Bank, agrees: “Europe is back in favour for UK investors, with financial markets having performed well over the past couple of years as the economy has grown and risks have receded.
“For some time now, we have maintained a positive view on Europe’s investment environment against a backdrop of improving economic growth, falling unemployment, supportive central bank policies, and a rebound in business and consumer confidence.
“We have also seen political risks reducing following market-friendly election results in the Netherlands, France and Germany, and there are encouraging signs that the region’s financial system is less fragile.”
But he is also all too aware of the precariousness of the European investment recovery, emphasising that while he is optimistic about the region’s general direction of travel, “it is important to be aware of the differences across the region, which present both risks and opportunities”.
All of this has boosted investors’ confidence in Europe, even at a time when the UK is trying to extricate itself from the EU.
While investment into the UK may be slowing, as companies wait to see what the outcome of the Brexit talks between the UK government and the EU will be, UK investors are perhaps trying to hedge their bets by investing in booming Europe.