May 2019 Macro monthly: Spring in Europe

What's the outlook for European equities?

20 May 2019

In this addition, UBS Asset Management discusses European equities. Over the last decade, European equities have underperformed their US counterparts significantly. Why? This is a reflection of various factors: political instability driven by the rise of populist parties and nationalist rhetoric; weaker economic growth and corporate earnings; and a tension between European indices weightage toward value stocks versus a global preference toward growth stocks.

The last 12 months have been no exception, with the trade-dependent Eurozone economy suffering from weakening global demand. Certain political and economic factors such as new German emissions regulations, drought in the Rhine, Brexit, and the Italian election outcome have contributed to both equity and currency underperformance in the region.

While valuation and positioning surveys suggest peak pessimism is at hand, the bar is low for European risk assets to catch up to some of their global peers in 2019 and beyond.

Given the improvement of global growth and improvements in political stability in some EU states, we believe that Europe has room to surprise to the upside in the coming months. 


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