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It sounds odd to talk of the risk of good news, especially with some markets at or near all-time highs. Yet if we look under the surface of equities and bonds, enormous pessimism about the economy is embedded in valuations. Markets have been pushed higher by defensive growth companies. A more forceful economic recovery could cause a significant rotation within…

It can be argued that Europe’s jointly issued stimulus package is the most significant moment for the EU since the launch of the single currency. The new structure adopted for this package sets a precedent that diminishes the probability of a break-up of the Euro over the long term. This can structurally lift the multiple of European equities. We all…

Given the economic shut down, bank investors are correctly weighing the scale of loan loss provisions in 2020. This is the dominant driver for bank earnings this year, but this focus obscures from view other positive earnings catalysts and developments that can act to support European bank share prices as we move toward 2021. In this note we discuss some…

The bear case for the global economy is well understood and well-articulated. Below we outline arguments that make the case for recovery. The argument is built on a series of observations. In mid-March European equity markets saw measurable extreme panic and capitulation. On prior occasions this level of fear has been associated with above average forward returns. Relative valuations between…

Many investors believed the dot com bubble was a one-off, with never to be repeated dispersion in valuation within the equity market. In European equities today the gap in valuation between value stocks and growth stocks has now marginally eclipsed the March 2000 peak. Below we show two non-cyclical measures of value: price to book and price to sales. These…

On December 1st 2019 a new European Commission begins, setting an agenda that presents opportunities and threats within European equities. The LF Lightman European Fund is positioned to benefit from a series of catalysts driven by European policy in the coming year. Co2 reduction and a Carbon Border Tax Europe is aiming to sharply reduce CO2 emissions – by up…

Euro Strength? A year of weak economic data and the ECB easing monetary policy has weakened the euro. What if the trend in the currency changes? What are the implications for European Equities? There are some signs the euro could strengthen vs the dollar in the coming year. Below we show the difference in pricing between 12 month call options…

The industrial economy led the European economy down and it will likely be required to lead the economy back up. There are reasons to suggest this process of recovery could begin imminently. Why? 1) The scale of the downturn already European manufacturing has been in a recession for a year. As we show in the chart below, German industrial production…

At times of higher market volatility we believe it can pay to step back and assess valuations within longer historical time periods. The most extreme moves in recent weeks have been in the bond market. This has had large implications for relative valuations within equities. As bond yields fall, bond-like equities typically outperform. We find most bond-like equities to be…

There has been an extraordinary flight to safety within European equities over the last 12 months, but it has occurred without fanfare. This level of risk aversion is normally associated with a very high VIX index and near panic. This time it has occurred more slowly, with little comment. This level of risk aversion can best be measured by the…