If you are looking for value in the global equities market, head to the Eurozone where economic growth is still new enough to be unhampered by central bank policies, according to AMP Capital.
“We favour Eurozone shares,” says AMP Capital Head of Investment Strategy and Chief Economist Shane Oliver.
Last week, the European Union’s statistics agency reported that gross domestic product—the broadest measure of the goods and services produced by the Eurozone’s 19-member countries—was 2.5 per cent higher in 2017 than the previous year, the fastest growth rate since 2007.
Central banks in Europe are not likely to try put the brakes on growth, though, as the economic turnaround in many of its markets is at the early stages following the financial crisis.
This in turn is leading to a sweet spot for many European stocks, says Oliver.
“We see Eurozone shares as relatively cheap,” says Oliver. “We see a lot of economic momentum in Europe, which will drive strong profit growth and we still think the European Central Bank will be relatively slow moving towards monetary tightening and that should favour Eurozone shares globally and see them outperform.”
Europe’s economic growth was largely driven by a turnaround in France where President Emmanuel Macron’s statements about business policies has helped fuel the biggest increase in business in investment for a decade.
While the European Central Bank is likely to proceed with caution, the US Federal Reserve is expected to make several rate hikes this year on the back of strong economic growth.
The Fed raised rates three times in 2017 and AMP Capital expects a further four to five rate hikes this year.
The Federal Open Market Committee last week left its target range for the fed funds rate at 1.25 per cent to 1.5 per cent, as expected by the market, and delivered a positive assessment of the US economy.
Finding value in the US is currently difficult, with all three major benchmark indices, the S&P 500, the Nasdaq Composite and the Dow Jones Industrial Average, reaching new record highs in 2018.
On a sector basis, rather than a geographic one, Oliver says investors should look to stocks that will benefit from a cyclical improvement in the economy.
“Resources will continue to do well,” he says. “I think that building materials companies, industrials, and possibly consumer discretionary stocks, but basically you would be favouring cyclical sectors that will benefit from economic growth.”
While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.