The epidemic situation remains severe, as the mutated strain of COVID continued its spread across the continent with its high infectiousness. Numerous countries extended their lockdown measures, which is expected to result in a softer Q4 economic growth. This could have potentially lasting impacts on the economy, as businesses had to rely on cheap credit and governmental aid to survive through the economic downturn, which could potentially give rise to another wave of ‘zombie companies’, creating another ticking time bomb for the region already struggling to find growth.

Brexit creates another point of concern. Although most of its former uncertainties have dissipated with the signage of the Brexit trade deal, Brexit’s disruption to the economy and business environment should not be underestimated. Retailers are halting cross-border businesses awaiting further clarification, logistics also face more complex border clearance rules, which will likely hinder regional economic growth in the mid to long run. Overall, as the sub-50 service PMIs across the region suggests, the current business environment is still far from optimal, the European economy remains under pressure. With the current outlook less favourable, we would refrain from overweighting European equities.