July was a positive month for the European equity market with the MSCI Europe adding over 3% after the weakness in June driven by the escalation of the US trade war. Looking sectorally, the recovery we saw in July was broad based with all 11 sectors in the green. Healthcare, Industrials, and Consumer Staples were among the top performers, while Energy and Real Estate lagged.
Trade continued to dominate news headlines, with fears that growing tensions between the U.S. and the rest of the world would lead to sluggish investment and slower export growth. Some of the risks have diminished in recent weeks after U.S. President Trump and European Commission President, Jean-Claude Junker agreed a deal to stave off the impending trade dispute with Europe. This, combined with more favourable macro data helped to boost sentiment towards risky assets in July.
Perhaps worthy of the most attention was of course the Q2 earnings season for European companies which began in July. As we have been flagging in recent communications, for us earnings delivery remains the key to drive further upside from here. The latest results season (which is around 40% complete at the time of writing) has so far delivered mixed results. Looking across sectors, Consumer Staples and Industrials have enjoyed the broadest beats, while Energy and Consumer Discretionary have fallen short of consensus at this point. However, while earnings have been a little lacklustre to date, we are particularly encouraged by the strong revenue growth being delivered, with top line growth tracking above 6% on a weighted basis which should help to support sentiment towards the asset class.
The Austrian equity market followed the trend clearly with some leverage due the pro-cyclicality of the market. Apart from the pro-cyclical recovery, Verbund showed further strong share price increases as the company is benefitting from the increase in the electricity prices and increase FY2018 guidance for the second time this year. So far it’s the best performing stock YTD with a plus of around 70%. On the other side of the equation you find Zumtobel, which is down significantly not just in July but also YTD due to its internal and external challenges.
Autor:
Andreas Wosol
Senior Portfolio Manager
European Equities & Country Strategies
Pioneer Investments Austria GmbH
A company of the Amundi group
Member of the Board of ÖVFA
14 August 2018
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Note
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