Developed equity markets

Investors in Europe are keen on the developed equity markets, which are home to a large number of well-known brands and companies. Despite some significant political changes, there is generally much to be said in favour of the developed markets: compared to other parts of the world, investors can rely on what are still extremely stable political systems and established
institutions on a long-term basis.

 


Largest equity market segment with extensive diversification opportunities

Around 88% of the value of global equities – measured by companies’ stock market capitalisation1 – is in the developed markets, with the remaining 12% in the emerging markets. Investors wishing to construct a diversified equity portfolio cannot ignore markets such as the USA, Europe and Japan, which are also established in different regions of the world.

Developed Markets: Around 88% of the value of global equities

Shares of regional equity markets on the MSCI All Country World Index weighted by market capitalisation (equities).

Global economy continuing to grow

Alongside falling unemployment in major economic regions, notably the USA and Japan but also Europe, rising wages2 are the basis for growing demand and an upturn that looks set to continue. Forecasts for expected further economic growth in the G7 countries, which include the major industrialised nations (and hence the major developed equity markets), continue to show an upward trend.3

Positive trend in economic growth

GDP growth expectations (year-on-year growth) for the G7 countries

Developed market positive trends

The figure above shows the development of expected economic growth (GDP growth compared to the previous year). The graph compares current growth estimates at the respective time by the Consensus Institute over the next 12 months (blue line) and the GPS level determined by the BlackRock Investment Institute (green line). This shows the potential dynamics of changes in expectations for the next three months.

 Source: BlackRock Investment Institute, February 2018

Investment focus on the USA
and Japan?

Economic growth lays a solid foundation for positive share price performance. Equity markets in which a favourable environment or even stimuli may also boost companies’ profits and hence their value for investors are becoming relatively more attractive for investors.

The experts at the global BlackRock Investment Institute believe that with a neutral weighting and a selective approach in Europe, an overweighting of US and Japanese equities could be advantageous. The reasons for this are as follows:

  • USA: positive stimuli for company profits and share prices are expected as a result of the impact of the corporate tax reform.
  • Japan: shareholder-friendly corporate behaviour and solid corporate earnings amid a stable yen outlook. As a result of the continued expansionary monetary policy of the central bank (Bank of Japan), the interest rate level is likely to remain low, thereby further increasing the interest of Japanese investors in equities.

A combination of passive and
active funds?

In respect of the developed markets, an extremely extensive and varied range of actively managed investment funds and ETFs is available to investors. Cost-effective ETFs, for example for core investments or quick tactical adjustments, and active investment funds for targeted prioritisation or selective stock picking can also be combined.

1 Source: MSCI, Shares of developed markets on the MSCI All Country World Index, as at 29 December 2017
2 https://www.blackrockblog.com/blackrock-jobs-barometer/ as at 14 February 2018
3 Source: BlackRock Investment Institute, February 2018