A just-published report highlighted the near-run opportunities that exist as a consequence of the cyclical uptrend in government bond yields once again pausing, which has allowed a risk-on phase to take hold.
We have the euro area as one of our top candidates for providing a positive surprise in 2023, and indeed euro area assets have recently been a beneficiary of improved sentiment. The euro is showing some resilience after a long period of weakness, especially compared with the currencies of what we refer to as the weak-link economies. The euro’s recent performance is encouraging given how sour sentiment has become on the regional economic outlook.
Moreover, the performance of euro area equities has been particularly impressive. Relatively cheap valuations, improving relative earnings trends and positive signals from key equity sectors all bode well for the outlook. In particular, the recent positive behavior of the industrial and financial sectors reinforce our conviction that investors should overweight the euro area within a global equity portfolio on a 6-12 month horizon.