The opportunity in European equities – JP Morgan AM’s research

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A new research piece from global market strategists David M. Lebovitz and Vincent Juvyns at JP Morgan Asset Management forecasts that returns on European equities will be modestly higher in 2014.

Over the past few years, European economies have suffered from an extended period of slow growth and recession, but at the same time, investors in European equities have enjoyed a cumulative total return of over 130%.

This highlights that, although European equities have not been popular over the past few years, they have in fact been profitable. European equities managed to gather positive momentum in bleak economic conditions, and now, as some of the clouds that have been hanging over Europe finally begin to dissipate, we believe that there is additional upside and opportunity for European equity investors.

We have observed that quality European companies, even those in the periphery, do not need rapid growth in the broad economy in order to deliver returns to their shareholders, suggesting that even a mild acceleration in growth over the coming quarters could provide a tailwind for the asset class.

However, it is important to remember that a rising tide may not lift all boats equally, and that the next few years may see more meaningful dispersion in performance. This dispersion will create an opportunity to add alpha as investors cast a more discerning eye towards securityspecific fundamentals now that the panic-inducing risk-on, risk-off swings are seemingly behind us.

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