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Defy the trend: go for Europe

The expectations in respect of the European economy are very low, and the European central bank, the ECB, struggles to fight off deflation. However, Danske Invest's macroeconomic analyst takes an optimistic view arguing that the economy has bottomed out and that 2015 will offer some progress.

European stocks have seen a very poor 2014 having moved hand in hand with poor economic data. The European stock index, MSCI Europe including net dividends, increased 4.79% during the first ten months of 2014 against a 14.63% increase of the MSCI All Countries World Index during the corresponding period.

However, according to macroeconomic analyst Jan Holst Hansen from Danske Capital - Danske Invest's adviser on macroeconomic developments - the European economy can now take a breather facing less harsh conditions. Hence, there are prospects that the odds will tilt somewhat in favour of European stocks.

"The prices in the investment markets are closely linked to investors' expectations. The expectations for the European economy are highly pessimistic, and this has resulted in low European stock prices relative to the prices in other regional markets. Therefore, it may now be a good idea to go for European stocks. In our view, the European economy has just about reached its bottom, and in 2015 the economy will slowly move towards an annual growth of 1.0-1.5%,” says Jan Holst Hansen.

Jan Holst Hansen rests his optimism on the view that this year's surprisingly weak development in the German economy does not appear to have affected neither the Southern European countries nor the banking sector. This is positive. In addition, the European economy will enjoy the benefit of both cheap oil and a weak euro as from the first half year of 2015. Moreover, we expect to see additional monetary easing from the ECB in the form of the buying up of securities, and the EU Commission's proposal for placing massive investments in among other things infrastructure is also likely to contribute to bringing the European economy back on a growth track.
 

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