The European Central Bank’s recent decision to cut rates for the first time since 2019 has created significant ripples in the financial markets. This move has prompted investors to explore new opportunities within the European landscape. Seema Shah, Chief Global Strategist at Principal Asset Management, joined the Morning Brief to share her insights on how to capitalise in this changing market environment.
Shah advocates for focusing on cyclical stocks, attributing her recommendation to Europe’s ongoing “cyclical economic upturn.” She points out that these stocks currently have attractive valuations, which are significantly lower than their US counterparts. This valuation gap presents a lucrative opportunity for investors.
Additionally, Shah highlights that the recent rate cut by the ECB, along with the potential for further reductions, sets the stage for “European equities to enter a period of outperformance.” This perspective is bolstered by the differences in economic data trends between Europe and the US. While European data is showing positive surprises, US data is trending downwards. Moreover, the uncertainty surrounding the Federal Reserve’s next move contrasts with the ECB’s clearer path of continued rate cuts.
Addressing the global investment landscape, Shah notes that investors have become accustomed to the US market’s prolonged outperformance. However, she sees compelling cyclical opportunities outside the US, particularly in Europe, where stocks are more attractively valued. The combination of favourable valuations, an economic upturn, and a supportive monetary policy environment suggests that European equities may outperform in the near term.
Shah also points out the strong performance of Japanese equities and expects this trend to continue. She advises investors to broaden their horizons and consider international markets beyond the US, given the current global economic landscape.
In conclusion, Seema Shah from Principal Asset Management emphasises the importance of looking internationally for investment opportunities, particularly in the context of recent developments in European monetary policy and economic performance. Her insights underscore the potential for European equities to outperform in the near future, providing a timely perspective for investors seeking to diversify their portfolios.
JPMorgan European Discovery Trust plc (LON:JEDT) is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.
