Why it's not time to shun European assets

For investors the concepts of political risk and Europe are inseparable this year. It is safe to assume that no other factor (apart from President Donald Trump's morning tweets) will dominate news flow as much as the amalgamation of Dutch, French and German elections this year, with the icing on the cakes being the start of Brexit negotiations between the U.K. and the EU.

The Dutch election last week has seen an incumbent win against a populist candidate. The euro has risen to a five-week high against the dollar. But analysts warn the "big one" is still to come – that's the French elections in April.

The conventional trade might be to shun European assets. But what we hear repeatedly from analysts on CNBC is: Staying invested in risky assets such as equities is better than just staying in cash. Why? The simple reason is the fundamentally bullish backdrop in global equity markets, based on improving data and expectations of market friendly policies under President Trump.

Vincent Juvyns, global market strategist at JPMorgan Asset Management, said that increased attention is understandable, but investors must also recognize that reflationary global environment will act positively to European companies. In the absence of major political turmoil, we expect these positive fundamentals to assert themselves in European stock markets in 2017, added Juvyns.

About the triggering of Article 50, it will have only limited impact on the pound since the referendum provides protection from further decline. Moreover, the markets are already fully aware of the reality around Brexit and are no longer stressed by the prospect of "hard" separation. Finally the resistance rather than strengthening the economy of Britain leads us to consider whether the pound will be the best long-term currency trading in 2017.

Source: CNBC

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