Monthly Market Report - December 2017

1st December 2017

One of the myths lurking behind the Brexit debate was the Sick Man of Europe idea. The argument went something like this: The EU and the Euro will doom the continent to low growth rates because of a constraining monetary union, centralisation and too much bureaucracy.Observers of Brexit on the continent could now be forgiven for feeling a touch of Schadenfreude as the tables are turned. Now Europe is powering ahead and the UK is stuck in the slow lane. But I always thought that this worry about Europe spoke to a much less ideological concern – Europe collectively (including a soon to exit Britain) just isn’t that important anymore.First off though the good news for investors in Europe, over the short term at least. European equities have had a strong 12 months. In dollar terms the region’s equity markets have increased in value by 1.9% over the last month, 5.2% over the last three months and 24.9% over the last 12 months. But even after these increases European equities are still below average in valuation terms – based on 2017 estimates for the full year European equities are valued at 16.5 times earnings compared to 17.7 times earnings for the MSCI World which includes all developed world countries. Looking into 2018, according to IBES numbers, European equities are 15.1 times earnings compared to 16 times for the rest of the developed world. These relatively low valuations, plus the evident momentum in local share prices suggests that local equities could go even higher in price.

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