France and Italy find room for fastest growth in Europe equities
French and Italian equity markets have been among the best performers in Europe this year as their economies catch up with Germany while Spanish equities lag behind thanks to an earlier recovery and new supply weighing on the market.
Quantitative easing has boosted European equities generally - in 2015 European markets have seen double-digit growth with the Italian FTSE MIB leading the pack with growth of 23 per cent and France's CAC 40 slightly behind with 20 per cent.
The Stoxx 600, which covers the whole of Europe, has grown 16 per cent, only slightly below the German Dax 30 with 17 per cent. Spain has trailed and is only up 8 per cent year-to-date.
Partly this was due to the belief that France and Italy were thought to be more at risk to contagion from Greece, whether perceived or real, said Nick Lawson, co- head of macro trades at Deutsche Bank.
As Greece has retreated from the headlines, France and Italy have performed comparatively better than their European neighbours. Partly this was because they had been thought to be more at risk to contagion from Greece, according to Nick Lawson, co-head of macro trades at Deutsche Bank. "It doesn't take much to move them either," he added, referring to the fact that volumes are much lower in the French and Italian markets than in the Dax and the UK's FTSE benchmark.
Since European markets reached their nadir on July 7 during the Greek crisis, the CAC 40 has seen growth of 11 per cent, beaten only by the FTSE MIB, which has climbed almost 12 per cent. Partly the pattern equity traders are seeing this year is due to France and Italy having more room to grow.
Spain emerged from recession in the last half of 2013 whereas estimates of GDP growth in Italy show that the economy is still struggling to lift off. More of the recovery is already priced into Spanish equities.
"There's not a lot of difference between France, Germany and Italy. Instead we're looking for things that have held the Spanish market back," said Ian Scott at Barclays. He highlighted Spanish companies' exposure to a slowdown in Latin America and the volume of new equity coming to the market.
New issuance on Spanish equity markets has also become increasingly active over the past 18 months after having previously been dormant - in 2013, for example, there was not a single IPO in Spain.
In February this year, Aena, the airports operator, embarked on the country's largest IPO since the crisis while Santander's sizeable overnight share sale in January signalled strong investor demand for equities and opened the door for more issuance.