What is your outlook for European small and mid-cap equities in 2018?
Caroline GAUTHIER/Cristina MATTI: The late-recovery is now broadening to all countries in Europe and their GDP components. Owing to accommodative monetary and credit conditions, the growth momentum is expected to continue into 2018, supported also by stronger internal demand. Notable progress in implementing reforms at both the EU and single country level is also supporting the positive outlook for the region. Although some local risks remain, political stability has improved and uncertainty about the EU architecture as a whole has diminished.
This backdrop of economic growth, still accommodative monetary stance, and subdued inflation should continue to favour equity markets, and in particular small and mid-cap companies, which are by nature more sensitive to the cycle. Consequently, we maintain our positive outlook for European small and mid-cap stocks in Europe in 2018, but with some caution as we arrive from a period of strong outperformance for this asset class. Therefore, investor in search of diversification within the risk allocation could consider an exposure to this asset class with a strong focus on selection.