The pan-European Stoxx 600 began on a downwards trajectory in April 2015 but has largely been on the up since late 2016 as economic fundamentals across the region have improved.
This has prompted a rush in to European equity markets. Fidelity International’s investment director, Tom Stevenson, told CNBC Wednesday that he expects as many as 60 to 70 percent of fund managers to now be overweight Europe.
“That’s always a slightly worrying signal,” noted Stevenson. However, he maintained that the European economy looks in “good shape” with strong fundamentals.
New research released today by BofA Merrill Lynch Global Research suggests that European equity markets currently offer a higher yield than high-yield European credit markets.
“The positive outlook for equities is underpinned by a robust earnings recovery. Leading indicators suggest additional EPS upside particularly in light of strong operating leverage from corporate Europe, and we see the asset class finally realising the positive convexity it offers to the earnings cycle,” the note said.
“While remaining constructive for high yield credit, as it offers better cushion to rising rates versus its IG counterpart, we think that European equities present a better upside opportunity.”
