Over the course of a politically charged 2016, European equities were held back by investors’ anxieties around the Italian Referendum and the looming French and Dutch elections. But even with the outcome of the latter two political contests currently up in the air, the political narrative has become less toxic in Europe.
“The news flow, is on the whole, somewhat better in Europe. Therefore, we would expect some of these political risks to be perceived as less risky by the market and expect a relatively OK performance by European equities in the near term.”
However, Kos thinks the German federal election is the one event that could potentially derail stability in the eurozone, bringing more volatility to the region come autumn.
“The German election has the potential to unhinge sentiment towards European equities quite meaningfully. I think Angela Merkel will be elected chancellor but with a much narrower majority and potentially with a right-wing party that has a significant number of seats in the parliament. That is one of the chief concerns we have, that European equities will do well in the near-term, but by autumn, there will be more volatility to come.”
