It was the effervescent hope of investors that, heading into 2018, “cheap” European stocks would continue to surge.
The dream rested on a durable European economy. At the time, it seemed to many that ECB President Mario Draghi’s pledge of doing “whatever it takes” to rescue the continent had worked. With borrowing costs this low, the debt problems that had so plagued the south of Europe seemed a distant memory. (Remember those PIGS [Portugal, Italy, Greece, and Spain]?)
So it goes...
Still, we’ve been steadfastly reminding investors for some months now that Europe is still… well… Europe.
Make no mistake. We’re not calling for a Eurozone recession or the break-up of the European Union. Still, #EuropeSlowing has been our call and we’re sticking with it.
So, in the spirit of “Throwback Thursday” we’re revisiting an institutional research note written by Senior Macro analyst Darius Dale on 10/13/2017. Like many Hedgeye calls we were characteristically early to #EuropeSlowing but stuck with the output of our research process.
Here’s what Dale wrote in this research note:
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"All told, if the choice is to either bet on our models or side with investor consensus that remains pervasively bullish on the European economy, we’ll bet on our models all day long… Feel free to chase these consensus setups if you want – hopping on the bandwagon at the tail-end of a fantastic 3-plus year European growth recovery is just not a position we are ever going to take within the confines of our process.” |
From its 2018 peak-to-trough, the Stoxx Europe 600 was down -10%.
Looking forward, what’s perversely helped European equities recover recently is the recognition of #EuropeSlowing as an ever present reality. Simply put, a weaker Euro relative to the U.S. dollar along with increasingly dovish policy expectations (both on slower growth and lower inflation) has backstopped the Eurozone equity markets. (Editor's Note: Our ETF Pro ideas related to #EuropeSlowing have been spot on.)
#EuropeSlowing is just getting started. That's why we encourage you to read Dale’s research note from 10/13/2017.
It will illuminate our research process and get your wheels turning about the important investing implications of #EuropeSlowing.
Happy Thursday!
(Click here to read this complimentary research note.)
