DIY Investor Magazine
|
Oct 2017
15
‘THE STRONG EURO WILL UNDOUBTEDLY BECOME A
HEADWIND FOR EARNINGS’
EURO STRENGTH OVERSHADOWS EUROPE’S
RECOVERY
Given the strength of the economic recovery across
Europe, it is no surprise to see a small amount of
strength in the euro against the US dollar, but this
arguably went too far when the currency reached $1.20
(on 28 August 2017).
German 10 year bunds (government bonds) have seen
yields move away from the negative levels of a year ago,
thankfully.
I believe the strong euro will undoubtedly become a
headwind for earnings however, and there has been a
trend of analyst downgrades over the last few weeks for
those companies that make a significant proportion of
their earnings in US dollars.
European earnings growth on average may plateau at
about 10–12% in 2017 after all, with 2018 struggling to
reach similar levels. But it is worth putting these figures
in context. Europe has struggled in previous years to
generate the earnings growth that many expected.
It seems to have gained traction in 2017, and there are
many sectors, not least financials, where the earnings
bounce back may remain strong into 2018.
While European markets have performed very well
for sterling investors, in local currency terms Europe’s
leading markets have risen by less than 5% in most
cases so far this year (to 31st August 2017).
That seems a rather begrudging response to political
stability (outside the UK) and a return to economic and
earnings growth, so I suspect that there is still scope for
good performance from European equities over the next
year.
Before investing in an investment trust referred to in this
document, you should satisfy yourself as to its suitability
and the risks involved, you may wish to consult a
financial adviser.
The value of an investment and the income from it can
fall as well as rise and you may not get back the amount
originally invested.
Nothing in this document is intended to or should
be construed as advice. This document is not a
recommendation to sell or purchase any investment.
It does not form part of any contract for the sale or
purchase of any investment.
Issued in the UK by Henderson Investment Funds
Limited (reg. no. 2678531), incorporated and registered
in England and Wales with registered office at 201
Bishopsgate, London EC2M 3AE, is authorised and
regulated by the Financial Conduct Authority to provide
investment products and services.
