By Riva Gold and Georgi Kantchev
Investors aren't waiting for the conclusion of the French
election to put money back into Europe.
They are already flocking back, betting that the region has
finally unshackled itself from fears of political turmoil.
Local stock markets just had their best week this year following
the first round of the French presidential vote, and investors have
poured money into the region's equity funds at the fastest pace
since 2015. The euro climbed 1.6% against the dollar in its best
week since July.
All this comes as investors start to look beyond political risks
and focus on the continent's strong economic recovery.
"People are beginning to let go of European political risks as a
theme," said George Maris, portfolio manager at Janus Capital. The
underlying economy and earnings picture are becoming more evident
now in Europe, Mr. Maris said.
Europe's buoyant equity markets are already reflecting much of
that optimism, despite coming political events that had once
concerned investors--chiefly the final round of voting in France's
presidential elections and votes in Italy and Germany.
Germany's benchmark DAX index reached a record in the week
following the French vote, while the Euro Stoxx 50 index of
blue-chip eurozone stocks climbed 3.5%, with advances in Europe led
by the banking sector. In dollar terms, the Euro Stoxx 50 index is
up almost 12% this year, nearly double the S&P 500's gains.
European equity funds recorded their strongest inflows since
December 2015, with inflows of $2.4 billion in the week to April
26, according to EPFR Global data.
Eurozone markets have rallied since the first round of French
presidential elections on April 23, when pro-European centrist
Emmanuel Macron won more votes than both Marine Le Pen, who pledged
to take France out of the euro, and Jean-Luc Mélenchon, a far-left
antiglobalist candidate. Mr. Macron is now seen as a heavy favorite
in the second round on May 7, when he will face Ms. Le Pen.
A solid election victory for the Dutch political establishment
in March has also soothed fears of a continentwide lurch toward
nationalism that had weighed on asset prices through this year.
Instead of politics, investors are focusing on economics and
earnings.
Unlike previous years, analysts have continued to raise their
projections for annual growth in earnings per share in the
eurozone, according to J.P. Morgan.
First-quarter earnings in the Stoxx Europe 600 are expected to
increase 5.5% from the first quarter of 2016, according to Thomson
Reuters data.
Investors point to good signals from the economy. Business
confidence and gauges of activity in the eurozone's manufacturing
and services sectors rose to six-year highs in April, despite
uncertainty ahead of the French vote.
"European growth is the best it's been since the global
financial crisis, " said Robert Waldner, chief strategist at
Invesco Fixed income. "The combination of supportive financial
conditions and a solid economy should boost equities and credit
markets in the region."
All this has ramifications for the European Central Bank as it
contemplates an exit from a EUR2.3 trillion ($2.5 trillion)
bond-purchase program. On Friday, eurozone inflation data for April
came in higher than expected, reaching 1.9%. The ECB targets
inflation close to 2%. The region has been battling low and at
times negative inflation for much of the past three years.
The euro jumped after Friday's inflation figures to settle at
$1.0897. "The market is pricing out political risks and is pricing
in a less cautious [European Central Bank]," said Vasileios
Gkionakis, head of foreign-exchange strategy at UniCredit
Research.
Mr. Gkionakis expects that if Mr. Macron becomes French
president, the euro would go past $1.10.
The ECB's signals in the months ahead are expected to be
critical for the euro's performance toward the end of the year.
Risks remain. There is still a chance that Ms. Le Pen could win
the French presidency, renewing questions about the future of the
eurozone. Euroskeptic parties have a shot at winning Italian
elections that will come by next year, at the latest, and Italy
continues to struggle with weak banks and bleak economic
prospects.
French economic growth slowed at the start of the year, while
ECB President Mario Draghi highlighted Thursday that consumer
prices remain subdued across the euro area.
For now, the European party continues.
Assuming French elections go as expected, "it at the very least
removes the immediate existential concerns about the eurozone and
euro currency itself," said Abi Oladimeji, chief investment officer
at Thomas Miller Investment.
Write to Riva Gold at riva.gold@wsj.com and Georgi Kantchev at
georgi.kantchev@wsj.com
(END) Dow Jones Newswires
April 30, 2017 07:14 ET (11:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Janus (NYSE:JNS)
Historical Stock Chart
From Nov 2024 to Dec 2024
Janus (NYSE:JNS)
Historical Stock Chart
From Dec 2023 to Dec 2024
