Style trends across the Euro-zone
Equities rebounded sharply from January’s declines, rising during February by 9.5% in euros and 7.7% in US dollars. Over the quarter to the end of February, equities are up by 18.6% in euros and by 13.4% in terms of the dollar.
The market’s recent strength has been concentrated within the information technology, services, non-cyclical consumer goods and general industrial sectors; and the sharpest increases in growth stocks (and the largest declines in value stocks) have occurred within these regions. Quite clearly, the Euro-zone is beginning to respond to ‘New Economy versus Old Economy’ concerns and much of the recent pattern of rewards undoubtedly comes from this feature of current market performance.
It is very interesting to observe that – unlike the situation in the US, where the recent surge in technology stocks has also propelled the smaller company sector of the market – in the Euro-zone, smaller companies are continuing to drift lower. While much of the interest in technology can be identified as interest in a handful of very popular smaller companies with fascinating ‘new age’ stories, the broader investor interest still appears to favour larger premium-priced securities with strong recent relative performance.
The resilience of the market is quite reassuring and ought to continue to encourage active equity investment and cross-border diversification within the Euro-zone, both by European investors and from non-European sources as well. Provided economic resurgence does not come in surprisingly strongly, these ‘structural’ market features and the underlying economic stability (low inflation and moderate interest rates) should continue to provide support for growth stocks into the future.
Robert Schwob is director of Style Research in London. http://www.StyleResearch.com
Notes: Euro Zone includes the 11 markets within the initial formation of the euro (Germany, France, The Netherlands, Belgium, Luxembourg, Italy, Ireland, Spain, Portugal, Austria, Finland). The total sample comprises 2,800 traded securities, and returns are the cumulative market-relative total returns (including income) earned from investing in the indicated style portfolios. The analysis is presented in country adjusted and sector adjusted (using the 10 economic groups within the FTSE Actuaries Industry Classification System) format, ie, after having adjusted for industrial sector distortions and country to country distortions. Size is the primary sort, where large is the top 80% by capitalisation and small the bottom 20%. Value is taken to be the top half, by capitalisation, of each size category, sorted by book value per share to share price, and rebalanced every six months; growth is simplified as the other half within each size category.