Monthly Letter March 2015

The outperformance of European equity markets over the US equity markets has been quite dra- ma c since the start of the year, especially if measured in local currencies. The EuroStoxx50 is up 17% whereas the S&P 500 is up c.0.5%. The di erence is less signi cant when you look at perfor- mance in a common currency. The EuroStoxx50 is up c.5% in USD year to date. So why has Europe outperformed this year? Will it con nue for the rest of the year? Let’s start with the reasons for outperformance: GDP revisions for Europe have been be er than in the US, earnings revisions have been be er and maybe the most important reason: liquidity and central bank s mulus are increasing in Europe vs. the US.

In our yearly letter for 2014 we predicted a 20% performance in Europe for 2015. We think that there is s ll upside as there will be a con nued rera ng on the back of increased con dence in the recovery of the European earnings and GDP. The posi ve effect of the weaker Euro tends to be treated as a one-o e ect by many investors. We see no reason for the USD to weaken. This means that the posi ve revisions we’ve seen in company earnings have so far been limited to transac onal and transla onal e ects. Next phase will be compe ve positioning and market share changes.

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