Lyxor Asset Management

2017 Top 400 Ranking: 112http://www.lyxor.com

Request More Information

2017: The revenge of Eurozone markets?

Since the euro crisis, US stocks staged almost twice as much performance than Eurozone equities. Will Eurozone markets start taking revenge in two thousand seventeen? We believe it’s time to reconsider this issue.

To be sure, political uncertainty appears higher in the Eurozone. The Union is facing a heavy agenda with elections in Netherlands, France, Germany and possibly Italy, not to mention the Brexit negotiations.

However, policy risks seem well reflected in less demanding valuations. The Eurozone trades at a discount of about 15% relative to the US on a forward PE ratio basis. And the discount increases to almost 50% on a price to sales or price to book bases.

Also, dividend yields are more generous in the Old continent and sentiment has more room to improve. But will it be enough to fuel a lasting catch-up? Probably not.

We believe that the decisive factor should be earnings growth. We doubt consensus forecasts that show similar progress, in a 12 to 15% range. Our models do suggest similar top-line growth, at about 3%, but margins should make the difference.

In the US, mounting wage inflation and higher interest rates would reduce after-tax margin by three quarter percentage point and lead to a 2% decrease in EPS. Factoring-in a fully retroactive tax reform would morph the 2% decrease into an 8% increase. This is still below the consensus view.

By contrast, in the Eurozone, operating leverage combined with a slight improvement in corporate pricing power should add at least 0.5 percentage point to margins, which could translate into EPS growing 10 to 15%.

We expect more volatility in the coming months and recommend tactical calls to address the theme.

Tags

Head Office
Tours Société Générale
17 Cours Valmy
Paris La Défense
F-92987
France
Company website:
http://www.lyxor.com
Parent Company:
Société Générale
Year Founded:
1998
No. of investment offices worldwide:
12

Browse this manager's…

What’s new

  • etf money monitor january 2018

    ETF Money Monitor: January 2018

    White papersThu, 18 Jan 2018

    ETF flows slow, but fly past annual record

  • ls equity get ready for an intense earning season

    L/S equity get ready for an intense earning season

    White papersMon, 15 Jan 2018

    The receding concerns about the Chinese soft landing, bright economic prints in most regions, prospects of a capex revival, and more hawkish central banks provided risk assets another leg of rally, while bonds sold off. 

  • extra time

    Extra Time

    White papersMon, 8 Jan 2018

    U.S. sustained expansion and the recovery gaining strength in the Eurozone and Japan should preserve global growth while the drag from China’s controlled slowdown could be modest. We anticipate milder returns in cyclical commodities. 

  • 2018 hedge funds outlook

    2018 Hedge Funds Outlook: Still favoring Bottom-Up strategies

    White papersMon, 8 Jan 2018

    During the first week of 2018, Event Driven and diversified L/S Equity funds outperformed. The fallout from the US tax reform spread and boosted event positions, as well as L/S equity’s cyclical stocks. 

  • tech downturn hit event driven equity

    Tech downturn hit Event Driven & L/S Equity

    White papersThu, 4 Jan 2018

    The tech sector is a pivotal component of most themes, indices and quantitative factors. It was tested over the recent weeks, dragged by fiscal uncertainties, profit-taking, and worries about the Chinese tech demand.

Search all our content