60 seconds with James Sym: Can a recovery in European earnings power further stock gains?
A time to pause after a strong performance from European equities
European equities have had a great run over the last three years, ever since the European Central bank President Mario Draghi said he would do “whatever it takes” to save the euro and help maintain the union, so now we need to take stock.
A reappraisal of valuations
Equities are no longer so cheap in Europe.
They started off cheap as we came out of the credit crisis, but European stocks have now re-rated to a more normal level of valuation, or perhaps even above historic levels of valuation based on companies’ profits.
Earnings upgrades on the horizon
The good news is we are about to start getting earnings upgrades.
That means that companies are going to start making more profit over the next two-to-three years than they have done in the previous few years, which is very powerful because for five years we have seen earnings downgrades in Europe.
Rewards on offer for patient investors
A big shift is needed in peoples’ portfolios. There are a lot of investors who have an underweight exposure to Europe and I think that could change quite significantly.
After a very strong start to 2015 I would say we have had most of the returns for the year, but if you are prepared to take a two or three year view I would say remain constructive.
The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored.