Equities since early 2017: a closer look

CHART OF THE WEEK

Following a very healthy end to 2016, the major equity markets have continued upwards since the start of the year, albeit to varying degrees. Emerging market equities are faring very well, up more than 9% in USD terms, and they are followed by US equities, which are up almost 6%. Then come Eurozone and Japanese equities, both lagging slightly.

The performance drivers are diverse. Company profits in emerging markets, after underperforming their developed counterparts for several years, have recently improved and earnings forecasts have been revised markedly upwards. Meanwhile, US equity market performance has mainly been driven by rising valuations. The Eurozone and Japanese markets are sitting in the middle. Their performance is underpinned by positive earnings forecasts, but these are slightly offset by a fall in valuation multiples.

OUR ANALYSIS

The weaker performance by European equities is likely due to political uncertainty, as apparently illustrated by the French and Italian markets’ underperformances relative to their German and Spanish counterparts. Preliminary PMI estimates for February indicate that Eurozone economic conditions remain on the right track. Such a backdrop should continue to buoy company earnings and in turn bolster Eurozone equities. In contrast, US equity performance could suffer from rather high valuation levels, with a price-to-earnings ratio now at its highest level since 2004.

The opinion expressed above is dated February 27th, 2017 and is liable to change

This document is not pre-contractual or contractual in nature. It is provided for information purposes. The analyses and descriptions contained in this document shall not be interpreted as being advice or recommendations on the part of Lazard Frères Gestion SAS. This document does not constitute an offer or invitation to purchase or sell, nor an encouragement to invest. This document is the intellectual property of Lazard Frères Gestion SAS.


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Julien-Pierre Nouen

Directeur des études économiques et de la gestion diversifiée