Following the unexpected outcomes of elections and referendums across the world last year, all eyes are on this year’s busy electoral calendar in Europe. Although a far-right party fell short in the recent Dutch elections, a wave of anti-EU, anti-immigration sentiment has bolstered the popularity of populist and anti-establishment politicians across the region. The prospect of geopolitical uncertainty have market participants closely following this year’s elections.
Nonetheless, we are maintaining our tactical overweight to Eurozone equities. There is potential for disruption from these events, but we believe that markets have already priced in significant political risk. Meanwhile, Europe continues to show signs of economic improvement, as the chart below illustrates. Key elections include:
Source: BlackRock Investment Institute, Thomson Reuters and EPFR, February 2017. Flows represent monthly cumulative net flows in to Europe ex-UK equity funds from January 2012 to 8th February 2017.
|March end||UK||Self-imposed deadline for formally notifying the intention to withdraw from the EU.|
|April 23||France||French presidential election, first round|
|May 7||France||French presidential election, run-off|
|June 11||France||National Assembly elections, first round|
|June 18||France||National Assembly elections, second round|
|September 24||Germany||German federal election|
|Date not confirmed||Italy||Possible early elections in the second half of the year|
Although not trivial and a likely source of volatility, political risk in Europe seems to be already discounted in markets and is keeping investors at bay. Therefore, we are tactically overweight Eurozone equities as we believe that a combination of stronger growth, earnings momentum, attractive valuations and light investor positioning, can provide eventual upside to the stock market.