Where next for European equities?

ON EUROPE

After three years of consecutive double-digit earnings downgrades, 2014 is expected to be the first year that European earnings will see upgrades, as domestic economic growth begins to gain traction.

Importantly, this time around growth expectations are rather more solidly based, evidenced by leading economic indicators such as manufacturing PMIs. Indeed these PMIs also infer that Europe’s peripheral countries will emerge from recession this year. This is exciting news for equity investors, and particularly for those stocks in the periphery where the transition from recession to growth can be a sweet spot. This transition is often associated with positive earnings surprises and upgrades. For the European market as a whole, it is the much maligned banking sector (accounting for a q...