Europe – Beneficiary of the Cyclical Trade | Harris Fraser
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21 April, 2021
Europe – Beneficiary of the Cyclical Trade

European equities continued the strong performance as capital inflows continued. Vaccinations resumed its steady progress should allow a proper economic recovery to take place. Over the month, the European STOXX 600 index surged 6.08% (3.48% in US$ terms).

Anticipation of rising inflation and economic growth drove capital to cyclical sectors, which benefitted Europe markets due to their heavier cyclical weightings. Local economic indicators headed higher, the Eurozone manufacturing PMI even hit a record high, reflecting business confidence in the upcoming economic recovery. The ECB has also openly addressed the risk of rising yields, stating that the bank will utilise all available tools to fend off any speculators on rising rates, guaranteeing a low interest rate environment in the future, further supporting equity market performances.

As for the ever important epidemic front, the AstraZeneca vaccine’s earlier suspension was subsequently resolved. Despite the bumps, Europe is still among the vaccination leaders, the European Commission expects the region to achieve initial herd immunity by the end of the quarter, marking a likely end to the endless lockdown restrictions. While the longer term growth prospects in the market remain relatively limited, the cyclical favouring trades could still further boost returns in the short term, valuations are in line with historical levels, which suggests further upside potential as long as the recovery trades are in place in the short to mid-term.

Monthly insight EU
 

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