Delphi has confidence in European shares
The fact that the European Central Bank (ECB) has started to print money is a milestone. Germany has traditionally been opposed to this and its surrender here indicates the seriousness of the situation. The ECB can probably be accused of acting a bit late but this move is undoubtedly positive for European shares. The strong returns at the start of the year bear witness to this. The ECB stimulus has among other things helped to weaken the Euro, and this will considerably help to increase the growth in earnings. Although the money printing mainly benefits the financial sector, other European sectors will also become more competitive due to lower interest rates, better access to capital and perhaps also lower credit mark-ups. In total, this means better times for European companies.
The natural flow of money indicates that the financial sector will experience positive effects first. Lower interest rates and easier and cheaper access to capital favour the banks, for example. At the same time, one must be cautious about claiming that this will help the entire financial sector. The effects must therefore be assessed from company to company, or from bank to bank. We are really most positive about the parts of European industry that benefit from a weaker currency. This is an effect that, in the short term, will lead to increased profitability and in the longer term will help to make goods produced in Europe more competitive.
At this time last year, we believed that 2014 would be the year when earnings growth would return. There are several reasons for our assumptions being wrong. Russia and the Ukraine crisis had a considerable impact and effectively stopped the increasing optimism in European industry. The impact was also greater than predicted. At the same time, German industry started to notice the weakening of the Chinese economy as 2014 progressed, among other things through a slowing of car sales. Today, the eurozone’s macro figures are improving and we expect this to be reflected in higher earnings in 2015. Unlike last year, the markets also have a more aggressive central bank behind them.
Germany is the largest economy in the eurozone, with a GDP share of more than 20%. That makes its economy around 40% larger than, for example, France’s or the UK’s and indicates that a European upturn requires the German economy to be doing well. Provided the Ukraine crisis does not escalate, we believe it is very likely that 2015 will be a good year for German industry. We also see signs that the German consumer is spending more and that German house prices are rising. At the same time, we must not forget the UK, which follows the US economy to a greater extent than the rest of Europe. The British economy has grown a lot over the past two years. We expect this trend to continue and make an important contribution to the European economy.