Byline: Andrew Miller
DEVELOPED equity markets performed well in 2013 and we expect that trend to continue this year, as economic data improves and central banks in the US and Europe consider winding down economic stimulus.
We are strategically and tactically overweight across this asset class and have particularly high hopes for the UK and Europe, as the eurozone is expected to continue to move out of recession and peripheral nations such as Ireland and Greece look much healthier.
The upshot of this is a positive view on European equities. This year is expected to be the first year that European corporates grow earnings since 2010, as forward-looking indicators suggest that the recovery can be maintained in 2014. Current estimates pencil in 13% earnings growth for this year, and while this may seem optimistic, there are a couple of points worth highlighting.
Firstly, such rates of growth are not particularly rare, especially in recovery periods and with bank write downs falling. Secondly, even if those forecasts were proved correct, earnings would still be some way below their 2007 peak. European equity markets have enjoyed a strong re-rating over the past 18 months and, while still far from expensive, many investors will likely want to see signs of material earnings growth. Those earnings estimates are likely to edge down from current levels, but with expectations still fairly muted, we believe earnings will be strong enough for European equity markets to have a strong year.
The UK should also benefit from a more robust eurozone, already demonstrated by positive momentum in the labour market. The number of unemployed fell by 125,000 in Q4 compared with Q3 2013 and employment rose by 193,000 during the same period (up 396,000 on a year earlier). …