Asset manager Robeco has intimated in a new presentation that the European equities market may be about to turn a corner.
The firm said in its European Equity – It is Always Darkest Before the Dawn presentation, available here, that the bigger risks are ‘now in the rear-view window’.
It wrote: “The list of woes for European economies is long and new items are seemingly added every day. This is reflected in the quite sobering current economic growth picture for Europe, particularly if we compare it to the US. This diverging story is illustrated in quite differing composite PMIs. The story has been worse in the industrials sector, with the European automotive industry one of the most high-profile casualties. There are several potential catalysts that could provide upside to European equities: reducing political turbulence, a ceasefire in Ukraine, a recovery in China, supportive monetary policy from the ECB, and rising consumer spending.”
See also: ESG investment in Europe a safer bet during volatile times
Valuations, it said, are ‘severely depressed’ within Europe, pointing the finger at muted economic growth along with downward earnings revisions that have not stood up well in the market. This, it said, has led to the poor valuations for European equity.
European consumers, it writes, now have ‘room to go out and spend’. It also pointed out that Europe and the US has diverged on monetary policy, with rates cut four times in 2024 by the European Central Bank (ECB). This has led, Robeco says, to an open door for further easing in 2025 — a stark contrast to the US’s Federal Reserve that will opt for lower and shallower rate cuts this year.
It wrote: “Post-pandemic US consumer spending has recovered to previous levels, which has been a key driver of US growth, and why the US economy has grown faster than Europe. Employment remains strong and inflation has fallen, but cautious European consumers have been more focused on rebuilding their financial net worth, rather than spending. The household savings rate is well above the long-term average as a result of uncertainties, particularly the war in Ukraine. Going forward, less negative sentiment bodes well for a recovery in consumption. Falling savings rates offered at banks may also trigger a less frugal mindset for European consumers.”
