European Equities Outlook

Developed market equities outperformed their emerging market counterparts last year, but Morningstar fund analysts say European stocks still offer opportunities

Morningstar Manager Analysts 24 March, 2014 | 4:41PM

Developed market equities came back with a vengeance last year as the market momentum from 2012 continued apace. Whilst the stand-out market in terms of performance over 2013 as a whole was the US, with the S&P 500 index returning over 25% in euro terms, European equities also performed well and the MSCI Europe index was up by around 20%.

European markets benefitted from improving business confidence indicators and PMIs during the course of the year, as well as improvement in economic data, which saw the euro area exit recession in the second quarter. Following the sharp market correction in late May/June, this improving economic data, coupled with more dovish words from central bankers after the initial taper talk, encouraged investors to rebuild weightings in riskier assets and led to double-digit returns for European equity markets in the latter half of the year.

On a country level, better economic news flow and increased business confidence in peripheral Europe as the year progressed meant that a number of those countries outperformed Europe as a whole. Based on the MSCI country indices in euro terms, Greece was up by more than 40%, Ireland by 35% and Spain by 25% in 2013. Reform efforts improved the balance of these economies, with current account deficits coming down. European funds that maintained overweight allocations to these countries therefore benefitted from a performance tailwind during the year.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Janus Henderson Contnn Eurp B€ Acc10.08 EUR-0.33
JOHCM Continental European B GBP4.51 GBP0.47
Schroder European Recovery A Acc6.32 GBP-0.14

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Morningstar Manager Analysts

Morningstar Manager Analysts  research and rate hundreds of OEICs, unit trusts and investment trusts available for sale in the UK.

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