Europe Stocks: Lending a Hand

Written by: Global Thought Leadership | December 01, 2017
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Source: Bloomberg, 11/29/17. Past performance is no guarantee of future results. Indexes are un-managed, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The Bottom Line

  • One reliable way to measure near-term optimism: watch how businesses and households approach investing in their future.
  • In recessions, both tend to hoard cash to help weather difficult times ahead. Sadly, their reluctance to spend can worsen a downturn, contributing to a vicious cycle of slowing consumption and underinvestment.
  • Conversely, an uptick in spending and investment can transform a cycle from vicious to virtuous, as households imagine brighter futures ahead, and businesses position themselves to boost their own returns.
  • Implicit in that activity is the expectation of their investment rewards will more than offset the cost of borrowing – which is why recent figures from Europe about lending are good news.
  • Year-on-year growth in lending (roughly 2.5% for business and 1.5% for consumers) shows not only that banks are now willing, but borrowers are willing too.
  • In aggregate, this suggests that lending in the open market has now grown more appealing than lending to the European Central Bank’s secure ongoing quantitative easing program. That’s a clear sign of increased risk appetite among bankers – the kind of shift that can feed the virtuous circle of commerce, and in the process, help European companies to build their bottom line and cultivate the kind of share price growth seen in the U.S., further along on the arc of recovery.
  • The bottom line for investors: this is continued good news for the fundamentals of European companies, and is one reason – among many – that this category is deserving of investor attention and interest.

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