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for press use only Investment View Strong market support for European value stocks Date: 7 July 2017 | Author: Nicolas Simar, Head of Equity Value Boutique at NN Investment Partners Value stocks, especially financials, will be the major beneficiaries from the growing stress in bond markets and the current positive macro-economic environment. NN Investment Partners (NN IP) expects that investors in Europe will switch their appetite from bonds to value stocks, which have a strong positive correlation with rising bond yields and are now seeing improving earnings. Banks have the highest positive correlation of all cyclical sectors.1 The valuation gap between expensive and cheaply valued companies also remains at a very high level in Europe, thereby providing a strong reason for investors to rotate into value stocks. Current valuation dispersion levels are close to those at the peak of Eurozone crisis of July 2012, and are currently significantly above the long term average of the last twenty years. For investors, this should offer enough margin to safely rotate into value stocks, also taking into account the economic recovery of the Eurozone. Investors have favoured bonds and their proxies in the first half of this year because of political risks and low inflation. But recent comments from central bankers that the unprecedented era of monetary easing is set to end soon have prompted outflows from this asset class. Political risk in the Eurozone has also declined significantly after the French and Dutch elections, thereby removing a strong headwind for value stocks. Stocks with predictable cash flows - also called ‘low volatility stocks’ - have behaved as bond proxies and have strongly outperformed in recent years as interest rates fell. Many of these stocks can be found in sectors such as Food & Beverage, Personal Care and Consumer Durables & Luxury. However, the combination of these excessive valuations and the prospect of rising interest rates constitute a toxic cocktail for these sectors and therefore NN IP continues to underweight them. We believe that, as the outlook for the Eurozone economy brightens, cyclically-sensitive stocks will be a prime focus for investors. Confidence in the euro area is strong, with both consumer and business sentiment indicators in June at their highest levels for nearly ten years.2 Macro-economic data in Europe point to further economic expansion. Earnings trends and the upside potential for equities are improving significantly, driven by sectors including Banks and Commodities. Hence NN IP retains a preference for dividend stocks geared to the economic recovery in Europe and is cautious on expensive low volatility stocks, for which capital protection is at risk given interest rates are expected to rise in the future. 1 Source: Thomson Reuters, Credit Suisse, June 2017 Source: Bloomberg, 29 June 2017 2 ENDS Page 2 of 2 Disclaimer This communication is intended for press use only. This communication has been prepared solely for the purpose of information and does not constitute an offer, in particular a prospectus or any invitation to treat, buy or sell any security or to participate in any trading strategy or the provision of investment services. While particular attention has been paid to the contents of this communication, no guarantee, warranty or representation, express or implied, is given to the accuracy, correctness or completeness thereof. Any information given in this communication may be subject to change or update without notice. Neither NN Investment Partners B.V., NN Investment Partners Holdings N.V. nor any other company or unit belonging to the NN Group, nor any of its directors or employees can be held directly or indirectly liable or responsible with respect to this communication. Investment sustains risk. Please note that the value of any investment may rise or fall and that past performance is not indicative of future results and should in no event be deemed as such. This communication is not directed at and must not be acted upon by US Persons as defined in Rule 902 of Regulation S of the United States Securities Act of 1933, and is not intended and may not be used to solicit sales of investments or subscription of securities in countries where this is prohibited by the relevant authorities or legislation. Any claims arising out of or in connection with the terms and conditions of this disclaimer are governed by Dutch law. Press contacts: Caroline Wroblewski T +31 70 378 1281 M +31 6 30485111 E [email protected] Marlie Zuidgeest T +31 70 379 1314 M +31 6 21494952 E [email protected] About NN Investment Partners NN Investment Partners is the asset manager of NN Group N.V., a publicly traded company listed on Euronext Amsterdam. NN Investment Partners is head-quartered in The Hague, The Netherlands. NN Investment Partners in aggregate manages approximately EUR 194 bln* (USD 208 bln*) in assets for institutions and individual investors worldwide. NN Investment Partners employs over 1,100 staff and is active in 15 countries across Europe, U.S., Latin America, Asia and Middle East. NN Investment Partners is part of NN Group N.V., a publicly traded corporation. * Figures as of 31 March 2017