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Weekly Manager Views

10 January 2020

At GAM Investments’ Weekly Investment Meeting held on 8 January 2020 the speaker was Niall Gallagher, who discussed the outlook for European equities.

European equities

Niall Gallagher

  • European equities enjoyed a very positive 2019 following something of a dismal 2018. Although last year was particularly strong, looking back over a longer timeframe shows the 2010s was far from a vintage decade for European equities when compared to US equities, for example. As a result, we believe there is significant room for “catch-up” growth as we enter 2020 and note that flows for the asset class are starting to turn from depressed levels.

  • The Citi Eurozone Economic Surprise Index – a gauge of optimism about the economy – witnessed a sharp inflection at the end of 2019, illustrating that recent economic news flow has turned positive and some of the geopolitical fog is clearing. The UK election, which resulted in a strong Conservative majority, was positive in terms of eurozone business sentiment. Moreover, the significantly reduced risk of a no-deal Brexit is welcome from an investment perspective across the continent, particularly in Northern Europe.

  • Some eurozone economies, particularly Germany and Italy, were hit hard when China and the US became embroiled in a trade dispute. Some form of resolution, which we believe is likely over the course of next few months, would provide a major boost to European business sentiment, corporate earnings and investment flows.

  • In terms of valuations, we feel there remains a lot to go for in European equities, both in absolute terms and relative to other developed markets where valuations are in aggregate more demanding. When compared to the US, for example, valuations look to be almost the cheapest on record – the European market currently trades on a 20% price to earnings discount versus the US.

  • Looking ahead, there are no significant elections in Europe coming up although the US presidential election in 2020 will undoubtedly throw up a few curve balls. We expect rising business confidence across Europe to disproportionately benefit more economically sensitive stocks, such as cyclicals. Overall, we start the New Year in an optimistic mood and with a positive outlook for European equities.

Important legal information
Source: GAM unless otherwise stated. The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or advice. Reference to a security is not a recommendation to buy or sell that security. The companies mentioned were selected from the universe of companies covered by the portfolio managers to assist the reader in better understanding the themes presented. The companies included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers.
January 2020