EU vs. USA: whose market is it better to invest in 2017

This year the European stock market for the first time in five years will overtake the stock markets of the US rate of investment and rate of return on assets, predicts in his review of the managing Director in the portfolio strategies of Goldman Sachs and Christiane mόller-Glissmann. Investments in consolidated European index Stoxx Europe 600 in 2017 can bring to the investor a yield of 8% in euros (due to the price growth and dividend payments), while the American S&P 500 index will be able to provide only 4% per annum in dollars, the analyst believes. The advantage that European stocks can receive in 2017, Goldman Sachs communicates with the uncertainty in the US economy, forcing global investors to seek new, more predictable markets. According to estimates by the investment Bank, this year the inflow of investment in Europe may increase by 9-15%.

As noted by Muller-Glissman, the last three months American indexes showed rapid growth in connection with the election of Donald trump President of the United States. Counting on a speedy reduction of taxes and rise of budget expenditures envisaged in the election program of trump, investors staged a rally in the stock market. In late January, the Dow Jones Industrial Average, S&P 500 and the NASDAQ reached all-time highs. However, recently began to decline for the first time since the beginning of the year. In the future, as the decline in investors ‘ optimism in terms of policy, trump, the growth of stock indices may slow down another.

Meanwhile, the continued strengthening of the U.S. dollar and the weakening Euro will provide additional support for European exporters, which is reflected in the quotations of their shares, emphasizes the analyst of Goldman Sachs. As a result, according to the forecast of the investment Bank by the end of 2017, the Stoxx Europe 600 index breaks out the level of 380 points is 4.8% more than as at February 2 (362,56 points). The S&P 500 index, the investment Bank predicts growth of only 0.9% from the current level (2279,55 points), to 2300 points. In accordance with this prediction, Goldman Sachs increased its portfolio share of European equities and reduced us stocks on the horizon of 12 months. However, their ratio in the investment portfolio of the Bank is not disclosed.

Pros

Investment in European stocks have indeed become a popular strategy in the coming year it is recommended our customers not only Goldman Sachs but other investment banks — J. P. Morgan Chase and UBS, says leading strategist “Aton” Alexey Kaminsky. He notes the increasing interest in the European stock market among affluent customers, the IC “Aton”, however, without naming concrete figures. According to Kaminsky, the Stoxx Europe 600 index has all chances to overtake the U.S. market, but not because of capital outflow from the United States. On the contrary, the country is expected to inflows of American corporations, which are now stored in offshore more than $2 trillion. This will help trump the promised reduction of taxes on profits and on repatriation of capital. According to Kaminsky, the acceleration of European market is due to two factors: the relative cheapness of the assets and improvement of the economic situation in the European Union. In 2016, GDP is 19 States in the Eurozone increased by 1.7%, while the total EU — on 1,9%, while the us economy grew only 1.6%. This is the first time since 2008, when the Eurozone countries have shown higher economic growth than the United States, emphasizes the expert.

Analyst “Discovery Broker” Andrei Kochetkov also predicts a temporary period of recovery in the Euro area amid improving macroeconomic indicators. “As European markets lagged behind the us, and the degree of riskiness they are quite comparable, in the next one or two years we can expect investors to return,” he explains. According to estimates Kochetkova, the profit of European corporations included in the broad market index in 2017 will increase by 14%, and in 2018 — 10%, which will positively affect quotations of their shares. Head of sales broker “Ah Ti invest” Andrey Khokhrin adds that currently, the S&P 500 index traded at a premium to the Stoxx Europe 600 in size from 20 to 50%. It talks about the serious growth potential of the European indicator, the expert believes.

The arguments “against”

However, despite all the advantages, skeptics among the respondents RBC experts, no less than the supporters of investment in European assets. From the six brokers that are members of the ten largest in Russia by number of active clients, only two noted the growth of investment in European securities from clients — IK “Aton” and “Opening Broker”. The reason — the risks associated with the European market. Chief among them is the political uncertainty due to strengthen the position of eurosceptics. “This year in Europe there will be elections in the leading countries of the unit. However, even the Federal Chancellor of Germany Angela Merkel is not guaranteed victory”, — says head of information and analysis of global markets “Finam” Michael Aristakesyan.

Head of Department of the analysis of financial markets “KIT Finance Broker” Vasily Koposov added that investors in European papers need to be taken into account and the monetary risks: sooner or later the European Central Bank will have to minimize the program of quantitative easing. “Increasingly, there are opinions that in the second half of the year, the ECB will gradually begin to reduce stimulus. This will reduce the influx of cheap liquidity and trigger market volatility in Euro denominated debt, which yields close to historic lows,” explains Koposov. He also notes that analysts still no consensus on the consequences of a British exit from the EU (Brexit), and the problems of the banking sector of Europe. “Potential causes for the correction of stock in Europe no less than in the United States, and the probability of these events, from our point of view, comparable,” he concludes.

Michael Aristakesyan Ledger “Finam” in turn, stresses that, even if the Stoxx Europe 600 index will show a yield of 8%, investments in the S&P 500 will still be more cost-effective within the next 12 months, the Euro may weaken to dollar parity. However, a baseline forecast of “Finam” growth of the S&P 500 index in 2017 — all 7%, not 4% as Goldman Sachs.

Where to invest

If, however, to focus on the evaluation of Goldman Sachs and put on investments into the European assets, the most obvious choice for investors — shares of German corporations, said Vasily Koposov from “KIT Finance Broker”. Germany remains the strongest economy in the Eurozone, in 2016 it rose 2%. In January the index of business activity in German industry PMI reached 56.5 points, which is a positive signal for investors. Koposov asks them to build a portfolio of the stocks included in the calculation base for the German stock index DAX, or purchase of securities exchange traded Fund ETF that tracks its dynamics, such as EWG (iShares MSCI Germany ETF). Last year the indicator DAX rose by 11.5% since the beginning of 2017 by 0.25%.

Andrey Kochetkov of “OTKRITIE Broker” also advises investors to pay attention to the German company — technology group Siemens and the auto giants BMW, VW and Daimler. In 2016 quotes Siemens increased by 37%, whereas the shares of BMW, VW and Daimler sank 3.8, 0.8 and 4%, respectively. To buy shares of Siemens can be made with a view to their further growth, and the securities of automotive companies in the calculation of the rebound. Kochetkov also believes that a good investment can become a paper Deutsche Bank. “If he can rake the heap of problems with the judicial authorities of the United States, the increase in the value of this paper will outperform the market,” he explains.

Kaminsky from IK “Aton” notes that in the case of investments in the European market is more appropriate to speak of the broad sectors, instead of individual securities. In his opinion, one of the main beneficiaries of accelerating economic growth in the EU will be banks and insurance companies. “Our recommendation — where possible, participate through the sector ETF. It diversifitsirovat individual and geographical risks, while allowing you to invest in different assets of the same sector,” according to Kaminsky. As an example, he cites Bank Fund Lyxor UCITS ETF Stoxx Europe 600 Banks (BNK FP).