The month of November has not been good for European companies, which are not yet benefiting from expectations of higher profits in 2018.
While Wall Street records records, the Paris Bourse has recorded Friday its fourteenth session of decline since November 1 (against 8 sessions of increase), as the index Euro Stoxx 50. In November, the Dow Jones and the S & P 500 recorded their tenth positive month since the beginning of the year (the eighth in a row), when the European stock markets have accumulated only their fifth month in the red (including 4 since May for the CAC 40 index) . Thus, the Paris index returned 2.4% in November and the Euro Stoxx 50 yielded 2.83%.
It is true that European equities remained on two months of September and October particularly prolific (+ 8% in two months for the CAC 40). But this performance in November illustrates the difficulties of European equities to regain the upper hand over US, despite the preference given by many asset management companies to this asset class.
Three phenomena weigh on the stock markets of old Europe. First, the low weight of technology stocks in the indices, while Wall Street benefits from the rise of the giants of the sector. Then, the euro, which has recovered from 11% since the end of March against the dollar (+ 2% in the month of November) and is approaching $ 1.20, perceived as problematic for the competitiveness of companies in the region. zoned. Finally, the markets have begun to incorporate the change of tone of the European Central Bank which should stop, in the current state of affairs, its asset purchase program in September.
This is the biggest daily drop on the CAC 40 this year. ” A day where rates and the euro had accelerated upwards, ” said Aurel BGC, which notes that the CAC 40 index has never fallen more than 2% in closing this year, a ” first since the CAC 40 exists “.
Growth is good
However, the negative performance of European equities compared to US can be surprising.
Firstly because the growth of the euro area has nothing to envy to that of the United States. The European economy is getting better and better as evidenced by the growth figures of the manufacturing sector published on Friday (the highest in 7 years in France and 17 years in Europe). ” America is more advanced in the cycle, ” says Samy Chaar, chief economist at Lombard Odier. However, ” there is still a lot of fat in the European economy, if only because there is still a big potential for lowering unemployment, which is a powerful factor for growth in the euro zone ” .
Lombard Odier therefore continues to favor European equities. ” The credit crisis is over, the tax situation is improving, ” continues Samy Chaar who points to another advantage of Europe: the catch-up is underway. While US profits are at an all time high, those of European companies have not yet returned to their pre-crisis level. However, the performance of the markets should be guided mainly, in 2018, by the profit growth prospects of companies. ” Expectations that are not yet in the courts” .
Even optimistic speeches for Patrice Cautry at UBP: ” Good earnings surprises should also support European equities, ” particularly in the case of ” accelerating global and regional growth momentum “, but also because of ” low pressure on European equities “. wages and margins “. The consensus is still expected to rise by 9% in 2018, ” a less sustained increase than in 2017 (+ 12%) “, but still enough to support the courses.