While the long-term risks associated with Eurozone shares remain, companies in the region are likely to be among the biggest beneficiaries of an improved global economy, according to Paul Parascandalo, multi-asset fund manager at Aviva Investors.
He said: “Full economic recovery in Europe may still be some way off but continued central bank support and a breakthrough in fiscal collaboration, with the European recovery fund, have helped to reassure investors. With large short/underweight positions being covered in recent months, positioning now appears to be reasonably neutral. Second quarter earnings announcements provided some very positive surprises and valuations look attractive, particularly vs US equities. Euro strength and the challenges faced by the banking sector may be important factors in determining near term performance but, over a slightly longer horizon, European Equities should be a major beneficiary in a global cyclical recovery.”
The Eurozone is full of companies in sectors such as banking and consumer goods which perform better when the wider economy is doing well, and worse when the wider economy is struggling.
This makes Eurozone equities much more sensitive to the performance of the world economy than those of many other markets.
Ben Seager-Scott, head of multi-asset funds at Tilney, said that while the return to economic growth will undoubtedly help markets, long-term problems with the structure of the Eurozone economy mean he is unwilling to be too positive on the outlook for the asset class.
He said: “We’re currently holding neutral on the region, with nothing really to push the dial in either direction. Europe, like much of the rest of the world, is slowly and tentatively emerging from lockdown and despite localised outbreaks, it appears to be faring better than, say, the US. But it will still take a while for economic recovery to really kick in. Some countries in Europe do have the fiscal firepower to support markets and economies and the ECB has shown the same level of willingness we’ve seen from the Fed and the Bank of England to print money to support markets, which is reasonably positive. However, the usual problems of monetary union but not fiscal union persists – the latest recovery fund is a welcome development and goes further than many thought would be possible, but it is not a panacea for current woes, and is a continuation of one of the things the EU tends to do best – muddle through.”