Leading earnings growth puts European equities on top as US loses its edge, says NN IP

Jeroen Bos

The investment outlook for equities remains positive according to NN Investment Partners (NN IP) with European equities currently in a sweet spot.

NN IP sees robust macro data supporting this asset class, in both developed and emerging countries, and strong, good quality earnings growth driven by both revenues and margin expansion. Furthermore, risk premiums are attractive and the momentum in equity inflows is positive, also supported by the low interest rate environment. Corporate confidence is also high, illustrated by recent activity including M&A and IPOs.

In the case of all of these indicators European equities are standing out from the crowd, including US equities, given their leading earnings growth, reduced risk profile and attractive relative and absolute valuation. The region scores better than the other regions globally, mainly driven by the Eurozone.

Jeroen Bos, Head of Equities at NN Investment Partners, commented: “With the recent election win of centrist Macron in France and the election result in the Netherlands, the rise of populism was halted in Europe. Although political risk in the Eurozone has not disappeared, we believe that compared to developments in the US, Latin America and several other regions, Europe could now even be classified as relatively stable from a political perspective”.

“2017 is a breakthrough year for corporate profitability in Europe”, Bos adds, ”marking the end of a prolonged profit recession in the region. We’ve seen earnings growth across the region that is currently substantially ahead of the US, with an expected growth of 19% and 13% respectively this year”.

Jeroen Bos added: “European equities are trading below historical metrics and with a higher average discount versus US equity markets than in the last 20 years. While US equities have become more expensive in recent quarters, European equities have become more attractive. As such, we remain overweight in this asset class in a global context, and believe active management has an edge over passive in European equities with our European strategies well positioned to add value for clients.”

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