With an increase of up to 20% in certain indices, the European equity markets had a perfect start into 2015. The major European stock market index, the Euro Stoxx 50 Index, climbed 17.5% within the first three months of the year. However, if measured in USD-terms, and in consideration of the strong US dollar, the performance was only 4.5%.
Investors are betting on a turnaround in the European economy and reducing their US equity exposure in favor of European stocks after the European Central Bank (ECB) launched its EUR 1 trillion Quantitative Easing (QE) program in March. European stock markets look to profit from the ECB’s liquidity injections coming into the financial system just as the US stock market did when the US QE programs started. European export companies are expected to benefit from the weaker Euro, which will make their exports more competitive and lift profits generated in non-Euro countries like the US.
Central banks will likely continue and maintain their stimulus packages to inject liquidity into the system in order to boost consumer spending. But there is a limit to how much you can stimulate the economy of US companies in this context. It is worth noting that exports represent around 30% to 40% of sales generated by companies in the S&P 500.
The S&P 500 showed a weak advance of 0.4% in 1Q 2015. One concern is the appreciation of the USD, which, for example, against the Euro strengthened by 12.7% throughout the 1st Quarter of 2015. This certainly makes US exports less competitive and we will have to watch the coming earnings seasons of US companies in this context. It is worth noting that exports represent around 30% to 40% of sales generated by companies in the S&P 500.
The major drop in the oil price is another major concern for the global economy. Oil prices (WTI) dropped from US$ 106 per barrel in June, 2014, to $48 per barrel at the end of the quarter.
In this BFI InSights, 2nd Quarter, 2015, we want to focus on the main themes and topics which we feel are at the forefront of concerns in the investment world. We will take an in-depth look at the oil situation and illustrate where we stand, what to expect, and who the winners and losers will be. Secondly, we will have a closer look at Europe and try to decide whether the situation there is really as bad as portrayed by the media.
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