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Opportunities in European Markets

Following Emmanuel Macron’s dramatic and convincing election victory in France, all eyes are on European markets

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Topic: Investing

What a difference a year makes.

Looking back to the start of 2016, investors had a lot to be nervous about. The UK referendum and a number of pivotal European elections threatened to dismantle the Eurozone and shake up markets around the world.

Only twelve months later, many investors feel like the risk of the Eurozone breaking up has fallen considerably, following big losses from anti-establishment parties in the Dutch and French elections. At the same time, Brexit seems unlikely to hinder Europe’s recovery, at least in the short term.  As a result, European stocks and shares are looking attractive and the European corporate bond market is also in good health.

So with renewed optimism, Head of Fund Research, Andrew Summers, reviews the risks and opportunities of the political events still on the horizon.

French Policy Agenda

Although Macron walked away with the election victory, it remains to be seen how many seats his new party ‘Republique en Marche’ will win in the June Assembly vote. If they are not able to achieve a majority, then a coalition may be on the cards. This could make it a lot harder for Macron to push his economic reform agenda through and raise a number of new investment uncertainties along the way.

UK Elections

As investors, we’re approaching this vote in a more relaxed fashion than the Scottish referendum, the last general election or the EU referendum. These events were fraught with uncertainty and saw sharp increases in financial market volatility. In contrast, the forthcoming election looks like it will confirm the direction of travel, just adjusting the potential speed of the journey.

Ongoing Brexit Negotiations

If the Conservatives win the general election in June, Theresa May will look to hold a substantial majority in the House of Commons, potentially giving her more leeway to negotiate a deal with the EU, although there still remains a number of unknowns as negotiations unfold.  This in itself will create new opportunities and risks for investors.

German Elections

Taking place in September this year, the German elections are not likely to rock the boat significantly, as all signs suggest that, despite the populist ‘Alternative für Deutschland’ polling well, it is highly unlikely to unseat either of the two mainstream parties.

Italian Elections

Casting a darker shadow on European markets is the forthcoming Italian election, which has to take place by May 2018. Italy has its own anti-EU populist party -The Five Star Party (5*) – and if they win the majority, the old familiar euro-fragmentation story will be back on front pages.

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Andrew Summers is Head of Fund Research and is responsible for the team that covers Investec Click & Invest collectives research. Please look out for Andrew’s ‘How to Invest £10,000’ column today in the Sunday Times.

 

 

Opinions, interpretations and conclusions represent our judgement as of this date and are subject to change. The information contained in this article does not constitute a personal recommendation and the investment or investment services referred to may not be suitable for all investors; therefore we strongly recommend you consult your Professional Adviser before taking any action. Copyright: Investec Click & Invest Limited. Reproduction prohibited without permission

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