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EUROPE’S RETURN TO GRACE CONFIRMED

Despite numerous factors of global instability, the release of french stock’s first semester results confirmed Europe’s return to grace. Expectations were high and corporates provided what the market was desperately looking after: revenues growth but most importantly operating margin’s improvement.

Optimism at its highest

According to a french financial press report (Les Echos – July 31st), more than a dozen of french corporates reported double digit revenues growth, providing the market with a rare optimisim : growth expectations have been confirmed if not increased for most of them.

The whole story is obviously not “spotless” as many factors of unstability remain: domestic consumption is still lagging behind and China’s economic slowdown has been seriously affecting firms exposed to the land of rising sun (Schneider, Danone, etc.).

Notwithstanding the above, European markets benefit from a triple package that should definitely pull ahead firm’s results over the next months: low interest rates, Euro and Crude prices. The backdrop couldn’t be better for french corporates which, according to analysts make 61% of revenues in Europe 9 (CAC40), limiting therefore potential drawbacks from an over-exposition to China (estimated to 7% only by analysts).

Professional Management proved to be more rewarding in volatile conditions

Playing the European market through much loved passive investments such as ETFs might not be the most rewarding strategy though. While ETFs provide for a cheap and diversified exposure to european markets, the current market conditions (high volatility) impose investors to be selective.

Having a look at the best rated Europe exposed ETFs, returns are more than decent but can’t compare with some of the Best European SICAV recently selected by Le Figaro- French Financial newspaper (YTD returns exceeding 20%). While these returns were supported by the improved economic conditions, the difference in performance is definitely linked to the “case by case” management of professional, experts in the european market.

Markets will remain volatile and therefore portfolio diversification is necessary if not paramount. Regardless the allocation that will be chosen by investors, Europe may definitely represent a good share of it – The best should be ahead of us.

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