Author: Bruno Springael, Senior Portfolio Manager, Global High Dividend at NN Investment Partners.
The Eurozone offers solid dividend growth potential of any developed region in the world, according to NN Investment Partners (NN IP). “While political uncertainty has been influential in driving down valuations in Eurozone equities, the region is particularly attractive because it offers more reflation-linked earnings leverage”, says Bruno Springael, Senior Portfolio Manager, Global High Dividend, at NN IP.
Springael believes reflation, actions taken by the government focused on the prevention of deflation, is now the key driver for equity markets globally, thanks to governments expanding their fiscal economic policies, higher bond yields, steepening yield curves, improving earnings and rising oil and cyclical commodity prices.
Banks are NN IP’s most favoured stocks as they benefit from steepening yield curves and combine attractive yields, low payouts and positive earnings momentum.
Bruno Springael commented : “We are seeing a pause in the recovery of value stocks so far this year, key factors in this being growing political risks and the recovery in earnings. We anticipated such a pause after a strong second half in 2016 and now is probably a nice entry point for investors.”
“Value outperformed Growth convincingly in 2016 but despite this, the valuation gap between the two styles remains significant. We therefore believe that Value can again outperform in 2017.” Springael continued : “A confounding factor might be political uncertainty. With elections in France, Germany and the Netherlands this year, this could be a potential source of risk aversion. We are also mindful that the rotation in the equity market might raise volatility levels but this could create diversification opportunities as previously popular stocks become oversold.”