The euro area economy and capital markets have chronically disappointed investors. After a promising period of outperformance in 2020, and despite better valuations for both the euro and regional equity markets, both have fizzled in relative terms during 2021.
Aside from having a hard time matching the tsunami of fiscal spending in the U.S., the euro area has also badly lagged the latter in keeping its economy open, mostly due to a relative poor performance in delivering vaccines. A just-published report covered a wide range of topical global investment issues, including the outlook for the euro, euro area government bond markets and equities. We are already overweight the euro, and overweight Germany (within a global equity portfolio). We anticipate upgrading our current neutral weight on the other euro area equity markets once vaccinations accelerate sufficiently to allow the lagging euro area service sector to catch up with the already strong U.S. service sector. We anticipate such a shift this summer – stay tuned.