Analysts are predicting a positive 2017 for European equities, although this doesn’t mean that much: stock market firms are almost obliged to bet on there being gains, while still conscious of the risks which are on the horizon due to political instability (elections in France, Germany and Holland, plus the effects of Trump and Brexit). Then there is also uncertainty about the pace of US rate hikes. The experts believe the positive factors will outweigh the negative ones. And amongst the first they highlight the fact the main European economies are improving, as well as the ECB’s monetary support and fiscal aid.
Furthermore, there are other elements which will act as additional catalysts, such as the stock market’s attractive valuation compared with public or corporate debt; the boost in corporate profits; the increase in inflation thanks in part to the recovery in oil prices and corporate transactions. Investors’ doubts will increase as we approach the key milestones in Europe’s political calendar and the Fed’s moves. As far as the latter goes, uncertainty is growing daily: a poll of over 30 Wall Street economists published by the Financial Times throws out the initial forecast for three rate increases next year: now there are more people who believe there will only be two hikes in 2017, and the first one won’t be until June, once the impact is known of the economic measures Donald Trump is preparing.
Another area where the experts disagree is whether Wall Street can continue to trade at record levels over the coming months or if, on the contrary, it would be better to bet on European equities. Despite the fact the risk would be greater due to the fear that populist movements will be victorious in the forthcoming elections. Those who are betting on European stocks recall that profits in Europe are currently 28% lower than pre-2008 crisis levels, while in the US they are 24% higher. But what is happening is that on the other side of the pond, investors are waiting for the multi-billion dollar public investments’ plan promised by Trump. In Europe, on the other hand, all kinds of projects included in the so-called ‘Juncker Plan’ are being approved in dribs and drabs.