JP Morgan predicts ‘nearly double-digit’ returns on European equities


JP Morgan Asset Management points to the potential for double-digit returns for long-term European equity investors prepared to re-risk their portfolios now, as the outlook for the region continues to improve.

According to the latest Market Insights analysis by JP Morgan, belief that the eurozone crisis is now contained and the “high tide of austerity” has largely subsided brings the opportunity for investors to benefit from increasing equity prices as risk appetite returns.

The report demonstrates this by highlighting the type of returns investors could achieve if the MSCI Europe index returns to its pre-crisis high in the next five years.

JP Morgan global market strategist Daniel Morris says: “Even if it takes markets until 2018 – a full decade after the onset of the crisis – investors getting back into the markets now stand to achieve nearly double-digit annualised total returns.”

JP Morgan global market strategist Kerry Craig goes onto argue that the reforms in the eurozone have created a “powerful psychological backdrop for equity investors”.

He says: “Merely the existence of the OMT has materially compressed peripheral sovereign bond yields, indicating that a large amount of the tail risk of a eurozone collapse has been removed.”

European equity investors are now faced with a market “that offers attractively priced opportunities underpinned by low core government bond yields, corporate earnings growth opportunities from exports and an eventual recovery in confidence at home”, according to the analysis.

With this background in place, the report says investors can now “begin bidding up equity prices as risk appetite returns”, a move which could in turn lead to double-digit returns in the future for those willing to invest for the long term.

Further opportunities are also created as the importance of stock selection returns as part of the receding crisis in Europe, the report says.

JP Morgan global market strategist Andrew Goldberg stresses that the market recovery in Europe “will not be smooth or without setbacks”, recommending that investors remain “well diversified to cushion the bumpy ride”.

However Goldberg says that any such flare-ups should not distract investors from the fundamentals, arguing that “times of great pessimism have historically presented some of the greatest investment opportunities”.