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Tim Edwards

European markets within a whisker of “bear market” territory


Tim Edwards (pictured), Senior Director, Index Investment Strategy at S&P Dow Jones Indices has analysed European markets for January and notes that it was a difficult month across the board…

Europe’s equity markets emerged battered and bruised from a highly volatile January recording significant losses across the board. With markets in a risk avoidance mode, and notwithstanding the single-basis-point total return of the Consumer Discretionary sector, only fixed income and precious metals indices show gains at this report.
 
The S&P Europe 350 rose or fell by more than one percent on 12 out of 20 trading days over the month; the resulting loss of 6.26 per cent puts the S&P Europe 350 within a whisker of official “bear market” territory (the price index is down 19.9 per cent from the highs of 15 April, 2015).
 
It was a particularly poor month for Europe’s financial sector, as large headline losses at Deutsche Bank provided confirmation to an increasingly bearish outlook for the region’s banks. Continued weakness in the Materials sector can be attributed to the increasing evidence of a major Chinese economic retrenchment and the yet-further falls in the S&P GSCI seen this month. Every sector bar Consumer Discretionary fell.
 
It could have been worse: last week the European markets were largely heading for a double-digit loss for the month. However, hints of an impending and increased stimulus from Europe’s central bank, and a last-day surprise from the Bank of Japan (which set negative interest rates on certain deposits) meant that once again fiscal stimulus provided grounds for optimism.
 
In sterling terms, the UK was a relative bright spot (although that a 2.2 per cent loss be a “bright spot” is indeed a sign of the turmoil). The UK announced GDP growth figures indicating that Britain’s economy had picked up pace in the final quarter of 2015, while the Bank of England re-iterated its reluctance to raise rates in the near-term. Uncertainty over a “Brexit” looms in the medium term; for the moment the betting odds are still indicating a “Bremain” to be the most likely outcome.
 
There was little respite to be found among our European equity strategy indices, whose performance was largely clustered around that of the benchmark. Infrastructure investments offered the most notable outperformance otherwise Quality, Low Volatility and Dividend tilts were the better rewarded

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