Monetary policy is expected to stay supportive to the market well beyond this year. ECB officials mentioned that there is no intention to roll back on the scale of the ongoing Pandemic Emergency Purchase Programme (PEPP) before March 2022, ECB president Christine Lagarde also promised that the ECB will keep the accommodative monetary policy unchanged ‘well into the recovery’. As inflationary pressures in the region remain rather benign compared to other major economies, we could expect the equity market to remain supported by the excess liquidity throughout the year. 

Solid fundamentals across the region also provided extra confidence to the market, important indicators including PMIs and various sentiment indicators stayed strong and beat market expectations. Given the strong sentiment, the key to a sustained economic recovery lies in the pandemic control in the region. With around 50% of the European population having received at least 1 dose of vaccine, European Commissioner for Internal Market Thierry Breton estimates that the region could reach herd immunity by mid-July. That said, keep in mind that the European overweigh is primarily a short term tactical allocation, and we will review the recommendation by the end of the second quarter.