With the MSCI Europe Net index showing gains of 8.9% at the end of May (from 7.7% at the end of April), European markets have seen continued progress.
A combination of positive factors have contributed to this: confirmation of the recovery in the economic cycle, fostering reasonable expectations of company earnings growth at the 20% level expected by the markets, as well as a rise in bond rates, which makes equities more attractive relative to bonds without significantly increasing the cost of borrowing for companies, and a marked easing of European political risk following the French presidential elections.
The European market is now valued at 15 times expected earnings. At this price level, future growth should come from stronger earnings rather than from an increase in multiples.
In the US market, current valuations of more than 18 times expected 2017 earnings already price in a large share of the support from expected reductions in company taxes, to the extent that any delays or a less ambitious programme than currently expected would create a risk, as does the unpredictable nature of decisions from the executive branch of the US government.
These elements increase the relative attractiveness of the European market vs. the US market, but their conjunction with the lag between the economic cycles on either side of the Atlantic – one very mature, the other at its early stages – call for vigilance.
Against this background our equity funds have gains for the year of 6.9% at Rouvier Valeurs and 9.5% at Rouvier Europe. Rouvier Valeurs continues to benefit from its continued qualitative positioning in a market where discrimination remains and from its exposure to European equities, which has allowed it to outperform the global MSCI World Net (up 3.4% to end-May). The strategic positioning of Rouvier Europe in companies offering greater leverage on the European recovery has confirmed its relevance.
The systematic hedging that is an integral part of Rouvier Évolution strengthens its attractions as the market rises, even though the cost of this hedge, in markets which have seen low levels of volatility so far this year, has limited its gains to 3.7% in the year to the end of May.
For Rouvier Patrimoine, the gains of 1.7% since the beginning of this year and 3.9% over the last 12 months are in line with its main objective of security in a context where its benchmark bond index is in slightly negative territory.