Outlook on Europe: April 2023

Lazard's Outlook series provides a forward-looking view, over the short, medium, and/or long term, of asset classes, sectors, regions, or countries from the view of Lazard Asset Management. In this edition, LAM portfolio managers share their outlook for Europe in Q2 2023. 

Summary

Improvements on the energy supply front have supported European equities, helping to account for the region's strong stock market performance over the first quarter. But the path ahead is unclear. The bond market predicts interest-rate cuts by the year-end while the equity market foresees a soft economic landing.

Our European equities team believe both views are somewhat extreme, although they continue to remain cautious on the region's economic growth prospects, given the growth-dampening effects of higher rates have yet to be fully felt.

• Improvements on the energy supply front have de-risked European equities, helping to account for the region’s strong stock market performance over the first quarter.
  
  
• The bond market predicts interest rate cuts by the year end while the equity market foresees a soft economic landing. We believe both views are somewhat extreme, although we continue to remain cautious on growth.
  
  
• European equities remain modestly valued, especially versus U.S. peers. Coupled with some recent economic good news (falling input prices, better consumer sentiment, and China’s reopening), this tempers our caution over the growth-dampening effects of higher rates.
  
  
• While European bond yields look attractive, we believe fixed income investors should tread carefully given elevated levels of uncertainty.
  
  
• We currently favor investment grade over high-yield bonds, although the Nordic high-yield market offers interesting opportunities.

Click here to read our Outlook on Europe for Q2 2023.