EURO zone shares are enjoying their best first-quarter performance in 17 years as global investors pour money back into the region on expectations the European Central Bank’s (ECB) asset-buying scheme will spark a corporate profit renaissance.
The Euro Stoxx index, including euro zone shares such as brewer Anheuser-Busch InBev and planemaker Airbus, is set for a gain of 18.8 percent, its biggest first-quarter rise since 1998.
The gain is even bigger for Germany’s DAX, up 22.4 percent and set to record its biggest first-quarter performance since its creation in mid-1988.
The rally in euro zone shares represents a rise of about e665 billion (R8.7 trillion) in market value over the past three months, data from Thomson Reuters Datastream show. That is more than half the size of the ECB’s quantitative easing programme, launched this month.
The drop in the euro over the past few months has helped fuel appetite for European stocks, as investors bet the lower currency will revive corporate results after years of stagnating profits.
“What’s coming in the next six to 12 months is probably a wave of profit forecast upgrades for euro zone companies, thanks mostly to the impact from the lower currency,” said Romain Boscher, the global head of equities management at Amundi.
The euro is down about 20 percent against the dollar over the past year, lifting euro zone firms as roughly 50 percent of their earnings come from outside the region, while the stronger dollar is set to hurt US company results.
“The context is absolutely unprecedented,” said Catherine Garrigues, the head of European equities management at Allianz Global Investors France. “With the ECB’s quantitative easing set to run into 2016, this will continue to fuel the rally in European stocks.”
Among euro zone markets, Portugal’s PSI 20 index has risen 24.5 percent in the quarter, Italy’s MIB index has climbed 21.8 percent and France’s CAC 40 has gained 18.8 percent.
Spain’s Ibex has underperformed, up 12.2 percent, reined in by worries over Spanish firms’ strong exposure to Latin America, where economic growth is slowing. – Reuters