That European equities jumped to the top of the overweight list for most wealth managers when the ECB’s launch of quantitative easing became inevitable was not surprising. The move worked very well for those quick off the mark, with European shares climbing sharply between October 2014 and last April. But it played itself out, as you can see here.
To claim anything fundamental really changed in this period outside of the flood of new central bank money however would be a hard sell, even for the most determined European equities fund manager.
So the results of a recent piece of research are curious. Despite the QE rally seemingly playing itself out by the middle of 2015, investors are showing great confidence in European equities’ near term prospects.
The UBS Wealth Management investor Sentiment Report is based on questioning of 641 investors across London, Birmingham, Edinburgh, Jersey, Leeds, Manchester and Newcastle.
On the key question of which regional equity market they expected to deliver the best performance over the coming 12 months Europe came out pretty comfortably on top at 31.8%. It was followed by the United States at 26.7%, emerging markets at 17.3%, Japan at 14.7% and interestingly the investors’ home market at 9.5%. So much for home bias.
It seems to be the case that investors are buying into the argument that central banks, in this case the ECB, can continually pump out new money and propel equities markets upwards accordingly.
This runs against the current of the evidence though, with the recent expansion of ECB QE doing little to lift markets.
The absence of any meaningful fiscal or structural reform across the eurozone combined with the Federal Reserve pulling back on hiking the US interest rate beyond the token 25bps rise and further strengthening the dollar seriously undermines the macro case for European equities.
