LFDE : European equities still on top in 2016

In a 2016 outlook note, Paris-based La Financière de l’Echiquier (LFDE) says it remains positive on European equities that will continue to perform well in 2016.

However, the French manager believes volatility is to last for months because of divergent policies between the Fed and the ECB. Commenting a possible Fed rate hike, the boutique says such a decision does not necessary mean US equities would underperform but highlights the advanced state of the US recovery with lower earnings per share at the end.

In Europe, Financière de l’Echiquier believes the gap is not bridged yet for European equities with US equities. Earnings per share have not reached those of US equities. The firm stresses that the average price earning ratio was 12.2 in the eurozone against 22.4 in the US at end October 2015.

The manager sees signs of recovery in Europe with household consumption rising and the house investing cycle being relaunched. Financière de l’Echiquier says that like in 2015, the ECB quantitative easing, low oil prices and a weak euro make eurozone’s recovery sustainable next year.

Concerning emerging markets, the environment is still uncertain with no recovery yet on the horizon, assesses Financière de l’Echiquier which however underlines encouraging news from Chinese authorities on China’s growth. The possibility of an abrupt hard landing of the Chinese economy drifts away the company says.

The French manager also highlights Chinese good news could have a positive impact on the global recovery cycle of which stocks from exporting European firms would directly benefit.

Financière de l’Echiquier overweights European stocks, especially from eurozone, in its portfolio allocation. It also keeps a stance on US equities but should progressively reduce its exposure over the coming year. As for bonds, Financière de l’Echiquier remains careful with sovereign debt in the perspective of a Fed rate hike but has a positive view on a few countries’ govies.

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