Europe is starting to see green shoots of recovery, according to newsflow analysis from Societe Generale’s Global Asset Allocation team. European newsflow is showing confidence for the first time since late 2011 when the recession hit Europe full force, and concerns over the US political situation are turning Europe into the market favorite.
Europe regains favor in the market
“With governance improving in the eurozone, a government shutdown in the US and a banking union taking shape Europe seems to have regained favour in the market,” the report says. “Recent inflows in Europe equities and bonds ETFs & Mutual funds confirm the increasing popularity of the eurozone.”
Michael Mauboussin: Here’s what active managers can do
The debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More
Spain and Italy’s adjustment in account deficits
Even in the periphery, newsflow is moving strongly upward even if it isn’t yet positive, with signs of recovery particularly clear in Spain and Italy, which benefit from adjustments to their current account deficits and cheap equity valuations. Even Greece has seen an uptick in positive news recently. France has had a fairly dramatic uptick in positive news now that the government has shown that it is committed to reform.
“Our newsflow for the US is showing signs of stagnation with uncertainty growing as there is still no resolution in sight for the US government shutdown,” the report says. “In addition, we believe that US equities are a crowded asset with corporate profitability close to peak levels.” While many people have predicted from the beginning that the political standoff in the US would last until the debt ceiling was close and a resolution became essential, the closer we get the more people are starting to think about the ramifications of default. In the longer term, Societe Generale expects the S&P 500 (INDEXSP:.INX) to drop by about 15 percent once the Fed begins tapering, as investors look for better P/E ratios in other markets.
Societe General’s Newsflow indicator calculates the percentage of positive economic news stories as a percentage of all financial news for a given country or region, so anything below 50 percent is considered to be a negative rating because it means there is more bad news than good. According to SG, the indicator tends to lag behind real activity by about 3 months.