A Year of Surprises in European Equities

Political events, wild swings and big sector rotations have punctuated a busy year for European equities, which, after a dismal start, have bounced in the final weeks to recoup most of their earlier losses.

Markets reacted in ways that few predicted to June’s Brexit vote in Britain, Donald Trump’s US presidential election win in November and Italy’s referendum on constitutional reform, Reuters reported.

“People have been a bit like rabbits in the headlights around these events and then, as a result, have been somewhat surprised by the market response,” said Will James, manager of the Standard Life Investments European Equity Income fund.

Here is a look at some of the biggest winners, losers and everything in between.

Best & Worst Performers

Russia and Bulgaria, both up around 26% so far this year. A recovery in oil prices, a rush back to emerging markets and a stable ruble have lifted Russian stocks. Among Bulgarian equities, banks have been the standout performers.

Bosnia, down 33%, and Denmark, down 15.6%. The falls in these two markets have overtaken both Portugal and Italy, which were plagued by worries about their respective banking systems. Denmark’s main index is particularly heavy on health care stocks, which have fallen out of favor this year.

 Best & Worst Sectors

European Basic Resources, up 65% this year, and oil & gas, up nearly 20%. The mining sector was the black sheep of 2015, hobbled by debt, a slowdown in growth in China, and a slump in metals prices. This year’s recovery accelerated after Trump’s election win, which spurred a huge rotation into sectors more likely to benefit from fiscal stimulus and wider economic growth.

Telecoms, down 17%, travel and leisure, down 14%, and health care, down 13%. “The biggest change in the last few weeks or months is that telecoms and utilities have been de-rated to such an extent now where I think they are looking good value again,” said Simon Gergel, chief investment officer of UK Equities at Allianz.

While travel stocks have had a hard time because of militant attacks in France and Belgium and security concerns in destinations such as Turkey and Egypt, telecoms and health care firms have suffered from a rotation out of bond proxies.

While pharmaceutical firms have been hit by increasing drug-pricing pressures in the United States, the telecommunications sector has been dented by the failure of several mergers.