European Large-caps which were underperforming small-caps since 2013 are changing the course. Already underpriced relative to US stocks, Large-caps offer shelter in the current uncertain market environment for safety flight.
Increasing demand supported by ECB’s sustained accommodative policy and increasing headline inflation fueled by the surge in commodity prices were the key drivers of growth in the past few months.
An upward trend in recent print of consumer confidence, new orders and Purchasing Manager expectations are encouraging record high hiring intentions and signaling significant operating capacity pressures.
Suggested improvement in economic conditions in Europe is negatively influenced by political uncertainties. These conditions, where political uncertainties are lurking around rising fundamentals, would favor Large-caps over small and mid caps. Also as the easing policy gives place to tightening undervalued large financials will start generating potentially higher earnings and the prices will not fall far behind.
Trade idea: Long European Large-Caps & Short European Small and Mid Caps.