GLOBAL - Bond and equity markets in Europe will "decouple" from and outperform their US counterparts over the next two years, according to new research by ABN AMRO.
In a report titled Roadmap to Decoupling, ABN AMRO hedge fund specialist Julien Garran (pictured) predicts the macro trends behind the decoupling effect will create significant headwinds for markets over the next 12 months.
Garran explains that while European and US economic growth may be synchronised, productivity growth is not which will ultimately lead to a divergence of profit growth and a recovery in Europe.
Increased pressure on US profits, significant US dollar depreciation against the Euro, a reverse interest rate policy and the fact that the US and Europe have passed an inflection point in productivity growth are the four major macro trends highlighted in the report.
“US productivity growth has passed a cyclical peak,” Garran said.
“The downturn may be aggressive.”
According to Garran, the potential for divergence rests on the degree of corporate restructuring and the potential gearing to recovery.
“The German corporate sector has the will and the ability to achieve significant productivity growth in the face of cost pressure and waning pricing power over the coming year,” he said.
“The jury is still out on France and Italy.”
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