Eurozone equities rose moderately by 0.7% in euro during April (falling by 4.1% against the rising US dollar). Over the past three months, equities have gained by 10% in euro, but only by 2.5% against the strengthening US dollar.
The trends that started during March have intensified during April. Despite the moderate overall performance within the European markets over the past two months, the local style rewards patterns look to have been influenced by investors’ experiences in other international equity markets, and by the recent performance of the euro.
Globally, investor confidence has been shaken and sharp falls in particular sectors (most notably telecommunications, media and technology) have given rise to the appearance of a dramatic turn towards value stocks. Earlier on during this market adjustment, the turn towards value was only narrowly observed, ie, within those sectors suffering the largest falls. This was much as one would expect when a local sentiment shift causes a sharp reappraisal of the most highly priced securities. But, recently, the value rebound has been much more extensive, and value securities have been gaining even within many sectors enjoying positive returns.
Clearly international market sentiment has shifted and, as bear market memories echo back from the market’s collective subconscious, all globally traded securities become susceptible. Although the initial symptom may have been a reaction to the clear over-shooting in popular growth sectors, now that appears to have been the catalyst for a more widespread change. And as the fortunes of the euro continue to disappoint foreign investors, the situation will most likely remain very unsettled.
Robert Schwob is director of Style Research in London.
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.