The shocks on the emerging countries, due to the individual histories and structural problems of the countries and fueled by the tapering of the Fed, have translated into inflows into Europe and in particular into the peripheral countries, including Italy. In Milan, the Ftse Mib in the last month of February rose by around 5% to 20.442,41 points. Madrid +2,4%, London +4,6%, Paris +5,5%. Frankfurt +3% which, extending the observation period to the second quarter of 2011, when the crisis had reached its climax, was the main beneficiary of the hope of European stabilization and since then has almost doubled.
Overall, after a marked ups and downs at the beginning of 2014, the main stock indexes recovered, returning to the levels indicative of the beginning of the year. At the same time overseas, the S&P 500 just at the end of February gained new records at 1.865 points intraday. Is this the end of the fix? For Credit Suisse analysts, it is too early to tell. Experts note that gold has rallied this year, and that “in the recent past the combination of equity markets bouncing and gold rallies has often meant more monetary stimulus from the markets is expected” , they write in their monthly investment report for March 2014. Analysts expect the Fed to continue its very accommodative stance and that support for growth is still very much there, despite the tapering. “This – they explain – makes us highly confident that, even in the presence of weaker economic data, any corrections will in all likelihood be short-lived and, probably, not very substantial. Where they were, we would proceed with purchases”.
The unrest in Ukraine remains a concern due to Ukraine's strategic geographical position between Western Europe and Russia. And the risk of volatility remains. Analysts point out that in Europe despite positive economic developments, trading volumes in equities have been quite low recently, “which implies that the consolidation of equity markets, both globally and in Europe, could continue for several weeks. Furthermore, the potential for surprises globally no longer points to a precipitous rally, which means that good news does not necessarily lead to large price gains in the short term and that the market is somewhat susceptible to bad news.
However, Europe represents, together with Japan, one of the main investment ideas for Credit Suisse analysts who underline how investors globally are faced with an unattractive scenario with short-term deposit rates close to zero, low . A situation that leads analysts to maintain an overall neutral view on shares and to wait for "a better entry point to offer a more convincing value, a clear re-acceleration of growth, or a renewed stimulus to support further price appreciation". But for analysts it is Europe at the regional level in this framework that is among the clearest investment possibilities in multiple asset classes.
Macroeconomic fundamentals continue to gain momentum and, in our view, equity valuations do not yet fully reflect earnings momentum or potential. In fixed income, bonds from peripheral European countries can also benefit from the further narrowing of yield spreads”. Furthermore, the phase in which investors withdrew their capital from Europe was so long, and the crisis so fundamental, that several months of large inflows does not mean that investors have finally returned to the European market. Analysts predict an underperformance of the US compared to the European and Japanese markets and on the equity front they prefer financial stocks and the IT sector.
“We already had a positive attitude towards insurance within the sector and now we also drive banks and diversified financials to outperform. Financials have had a solid earnings season on both sides of the Atlantic and valuation looks still interesting. While tighter regulation will in all likelihood have a negative impact on profitability, we believe that improved confidence in the industry's soundness will more than offset these difficulties." A picture, in short, in which stabilization is taking shape in Euroland. And, surprisingly, analysts consider Italy their "favourite region in European equities and European fixed income".
Investors, Credit Suisse argues, are clearly responding favorably to the prospect that the reform process, which has stalled recently, could in fact receive fresh impetus from the new government headed by Matteo Renzi. So besides Germany, they say, “our favorite country since the beginning of the year is Italy. This is not only because of hopes that Italy's urgently needed reforms will be given new impetus, but also because Italian equities are still very cheap, on a comparative basis, and Italian companies are in a strong position.
