Europe to return to growth in 2014 – Whatever it takes
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The ECB renewed commitment to maintain an accommodative monetary policy will be among the factors that will help Europe to continue the path to recovery that should result in positive GDP growth this year. While Mario Draghi was cautious in calling the end of the crisis his firmer language echoes the famous 2012 speech that drove the return of investors confidence in Europe. Valuations in Europe remain attractive and there are several investment opportunities both in the broad indices and specific sectors like financials and consumer discretionary.
This does not mean that the challenges are over:
– Unemployment remains at very high levels of 12.1% (particularly in the periphery)
What is particularly concerning is the level of youth unemployment that reached very high levels (36.8% in Portugal, 41.6% in Italy, 57.7% in Spain).
– The monetary transmission system of passing the high liquidity provided to banks is not functioning properly.
Small and mid size companies are still seeing limited financing opportunities and the same is true for consumers.
With the industrial production improvement in Germany (Nov data) and the economic sentiment at a 29 month high the environment is still positive for investors. In the specific I will continue to favour companies with global exposure including consumer discretionary.
European banks
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With the renewed support of the ECB there are still opportunities in the European banking sector particularly in the periphery (with the exclusion of few banks that still have not adapted to the new environment and raised sufficient capital). Overall the creation the banking union later this year will further strengthen the whole sector and reduce the sense of insecurity that has prevented some investors to enter the market.
The banking union will increase uniformity across Europe and ensure an even higher degree of regulatory oversight and transparency.
In Short
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– ECB renewed commitment to maintain an accommodative monetary policy will be positive for European Markets in 2014.
– The European steady path to recovery should translate in positive GDP growth in 2014.
– Europe still faces several challenges like high unemployment that will take time to normalise.
– European Banks in the periphery present interesting valuations and a good opportunity for investors.
