Pease says although the US has been highlighted in the first in and first out of recession scenario, historical market troughs show that Europe and the US move similarly in terms of a market response.
He says the European market peaked before the US, with the MSCI Europe index turning down in July 2007. He also believes there are several factors that indicate strength in the next 12 months, such as European governments being in a stronger position than US or UK counterparts. He says the strong euro acted as a brake on earnings last year. He says: “As the European Central Bank cuts interest rates, the relative yield attraction with other currencies will diminish. A weaker euro would improve the profitability of those companies with overseas earnings and further support valuations.
“For a sustainable rally to be achieved, however, the US housing market needs to find a floor and credit markets must reopen. It would be a brave investor who bets against US hegemony in the equity market direction but the past 18 months has seen the fall of many stockmarket tenets, so maybe a European-led recovery should not be entirely dismissed.”