Politics remains biggest uncertainty in European equity valuations – SEB
A review of Europe’s equity markets by SEB suggests that politics remains the biggest risk hurdle to overcome.
Among the key investment issues noted through the Swedish bank’s latest outlook are:
– Markets have started off 2012 on a positive note. The best performers so far have been some of the BRIC countries, with India leading the way followed by both Brazil and China.
– Within the euro zone there is a wide discrepancy between countries. Germany has delivered a solid performance, while problem-plagued Portugal and Spain are both in negative territory.
– Sectorwise, the “risk on” sentiment has resulted in investors buying mainly into last year’s losers, namely banks and financials. So far this year, these two sectors have climbed nearly 10 per cent, while historically defensive sectors like telecoms and health care have turned in a negative performance early in 2012.
– Current valuations in equity markets are fairly cheap in a historical perspective. In terms of both price/earnings and price/book value (P/BV) ratios, most equity markets are valued well below historical averages, with a solid upside potential.
– SEB forecasts that the euro zone is moving towards a mild recession. The biggest source of uncertainty remains the political scene.
– Several stock markets in the Euro region may very well rebound sharply if political development bring upside surprises, but SEB does not believe this risk is worth taking.
– Conditions vary greatly between northern and southern Europe. Germany’s economic vitality has been an upside surprise in the past month, and the euro’s weak exchange rate is fuelling the country’s important export sector. Exposure to German companies thus has the potential to be a favourable investment.
To read the full Investment Outlook click here: [asset_library_tag 4110,Surprises may be waiting around the corner]