EUROPEAN EQUITY
Three-year sector performance
Source : FE Analytics ( 31 Mar ’ 13 to 31 Mar ’ 16 )
Three-year annualised return / volatility
SECTOR ANALYSIS
Europe small / mid-cap equity posted a 30 % return in US dollar terms over the threeyear period , outperforming other subsectors in its category . It had a particular strong run from Q4 2014 when European equities came back into vogue following the ECB ’ s announcement to expand its stimulus measures . In contrast , Europe including UK equities underperformed . UK equities were held back by several country-specific events including the Scottish referendum of 2014 and more recently the EU referendum scheduled to take place in June 2016 . Currency rates also dragged on fund performance as the US dollar stayed strong against the major European currencies over the period .
MARKET REVIEW
European equities started the period off well against an improved macroeconomic backdrop with peripheral Europe showing better reform prospects helping boost business confidence . At the same time , the ECB maintained its accommodative monetary policy stance to help combat deflation and spur growth . While a weak euro helped improve earnings prospects for European companies and drove equities higher , a weakening euro also turned the positive returns of 2014 and 2015 negative when we rebased performance into US dollars . In 2015 , we saw a deterioration in Greece ’ s ability and willingness to service its debts as well as the intensifying worries about China ’ s slowdown hitting global investor sentiment . UK events such as the Scottish referendum of 2014 and the coming referendum on the UK leaving the EU , also weighed on markets .
MARKET OUTLOOK
European Equities are currently trading slightly above their long term historical average in terms of price-to-earnings , and pretty much in-line on price-to-book . While inflation continues to be mild in the Eurozone , the ECB is likely to maintain an accommodative monetary policy to help spur growth . On the other hand , the divergence between the European Central banks policy and that of the US Fed is likely to weigh on the euro . The possibility of a Brexit following the UK ’ s EU referendum will no doubt further add uncertainties to both the EU and the UK markets and their respective currencies .
Source : FE Analytics ( 31 Mar ’ 13 to 31 Mar ’ 16 )
Provided by FE Advisory Asia as of 31 May ’ 16