Although developed market equities have performed poorly over the pastmonth, in general we do not expect them to continue to struggle. Europeanequities were the worst performers, dragged down by the escalation of thesituation in Ukraine and some disappointing macroeconomic data. Granted,geopolitical risks appear to be rising and could dominate the markets forsome time. And there are signs that the euro-zone’s economic recovery haslost some momentum recently.
But a number of factors remain supportive of equity prices. First, Europe is ata stage of its profit cycle which is favourable for equities, so a steadyeconomic recovery could still boost firms’ earnings even if growth does notaccelerate. And valuations still look attractive, at least compared to those inthe US. What’s more, we think that the ECB will eventually implement someform of quantitative easing programme which, if the experience of the US isany guide, would provide a considerable boost to the market.
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