PA ANALYSIS: Stars aligned for a European equities rally

The fact that the Euro Stoxx 50 index recorded its largest one-day gain since July 2012 on Monday suggests the importance for investors of Emmanuel Macron’s victory in the first round of the French presidential elections can hardly be overestimated.

PA ANALYSIS: Stars aligned for a European equities rally

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The index, covering the 50 largest stocks in Europe, leaped 3.9%, led by banking stocks such as Societé Générale (+9.9%) and BNP Paribas (+7.5%).

Markets have now priced in that a pro-European, business-friendly president will occupy the Elysée palace in Paris for the next five years. Does this reassuring thought mean that all stars aligned for European equities, and that markets will rally? 

Jan Vergote, chief economist at the Belgian bank Belfius, believes the European equity rally is set to continue at least till the end of this year. 

“We had already increased our exposure over the past 14 days against a backdrop of improving macroeconomic data in Europe,” he said, adding that this positive dynamic is likely to be reinforced by Macron’s likely victory in the second round.

“Eurozone equities are the place to be now. We especially like high beta stocks such as industrials and banks.” 

Thomas Romig, head of multi-asset at Assenagon in Frankfurt, is equally bullish.

“We increased our equity allocation slightly on Monday,” he said.

Romig thinks the biggest opportunities within European equities may now be in small caps because of their high exposure to the European economy.

“And on a day like this, large-cap stocks go up most because everybody buys futures [of mainstream indices]. Small caps are only up 1.7% today.” 

 

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