Market Outlook: European Equities

Despite the noise, now is not the time to doubt Europe. Why? The simple answer is that geopolitical concerns are masking underlying company improvement

J.P. Morgan Asset Management 26 August, 2014 | 12:18PM
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Morningstar's "Perspectives" series features investment insights from third-party contributors. Here, Jon Ingram, Fund Manager, JPM Europe Dynamic ex UK Fund explains why Europe on the road to recovery is still good value.

Jittery investors could be forgiven for having doubts about European equities in today’s markets. A combination of lingering fears about the mediocre European economy combined with a recent spate of heightened political tensions, namely the Russia/Ukraine situation, has shaken confidence. However, despite the noise, now is not the time to doubt Europe. Why? The simple answer is that geopolitical concerns are masking underlying company improvement.

European markets have fallen as strains with the impact of Russian sanctions and lingering bank stability concerns resurfaced with the problems of Portugal’s Banco Espirito Santo. With these factors weighing on sentiment, it has been easy to overlook the significantly positive news buried in second quarter earnings season, which is that the European corporate sector is in improving health. Year over year earnings growth in Europe was 8.4%, outpacing the US, which by comparison had 6.9% year over year earnings growth for the second quarter of this year. This is the first time in five years that European earnings growth has been ahead of the US. Fifty two per cent of companies beat expectations, 12% were in line with expectations and only 36% missed. Overall there were solid signs of margin improvement. Larger companies are joining their small and mid cap peers in returning to growth, leading to further upgrades to corporate earnings. 

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About Author

J.P. Morgan Asset Management  is the investment arm of JPMorgan Chase & Co. and it is one of the largest active asset managers in the world.