Key highlights:
- Strong signs of growth from Europe in H2 of 2016 to continue in 2017?
- Key political events ARE scheduled in Europe during the year ahead. Download our 2017 European Political Calendar here.
- ESTX with large cap concentration and absence of UK exposure compared to peers was best performing ETF for the 2nd half of 2016. ESTX provided a total return of 8.9% during Q4 2016.
Europe came under particularly close focus from investors during 2016, and will do so again in 2017, as our "2017 European Political Calendar" highlights. However, it is clear that many investors believe that political fears may not derail the significant economic progress that Europe has made. This was highlighted by the almost 4% total return of the EURO STOXX 50 over the calendar year. The case for inclusion of eurozone equities in a portfolio remains strong based on recovering economic fundamentals and being a value investment compared with other markets1 . If the eurozone is able to weather some of the trickier encounters set for 2017, the companies in the EURO STOXX 50 could benefit.
Historic analysis
Below we look at analyse the market performance of several European benchmark indices in 2016.
Chart 1: 2016 total return of key European benchmark indices in Australian dollars
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Commentary
- In 2H of 2016, following the Brexit vote, the eurozone clearly outperformed the remainder of Europe, with the EURO STOXX 50 returning 15.5% in euro or 13.5% in Australian dollar terms.
- Higher concentrations of French and German companies were the top contributors to the EURO STOXX 50’s outperformance along with the absence of UK stocks. The UK was impacted by the fall in pound sterling, which dropped 13.6% against the euro during the year.
Summary
The events of 2016 showed that not only it is impossible to make predictions about the outcomes of political events with any degree of confidence, it is also becoming increasingly difficult to decipher the reaction of financial markets. One thing clear is that 2017 will be an important year for the political landscape in Europe and that this presents both risks and opportunities. Recent events, such as the post-US Presidential election rally, have shown that the market may be more resilient to the prospect of rising populism, which may make Europe more attractive than other regions from a value perspective.
Investors looking to express a view on potential opportunities that may arise in Europe or the eurozone in 2017 may consider an investment in the ANZ ETFS EURO STOXX 50® ETF (ESTX).
Download the 2017 European Political Calendar here
