04.14.2014
By Terry Flanagan

European Markets Gain Traction

European markets have stabilized after some difficult times after the past few years, and renewed investor interest has the so-called old continent poised for a renaissance.

That was the general opinion offered by panelists at the Paris Europlace International Financial Forum 2014, held on Monday at the New York Stock Exchange building in lower Manhattan.

“We are very optimistic about Europe as a capital-markets center for the globe,” said Mark Wiedman, global head of iShares at BlackRock.

European institutional investors are increasingly transacting in exchange-traded funds. ETFs are often bought and sold as a substitute for individual securities and derivatives, not mutual funds as is commonly perceived, Wiedman noted.

At about $400 billion, the European ETF market comprises about one-sixth of the global $2.4 trillion ETF market. There is much room for upside and the expansion in Europe can be expected to drive liquidity and make the continent’s markets more attractive to outside investors.

U.S. investor perception towards Europe has shifted from concern about a blowup, to confidence mixed with skepticism that the continent is out of the woods, to hope for growth, according to Marc Badrichani, head of U.S. sales and marketing at J.P. Morgan.

Allocations to European doubled in some U.S. investors’ portfolios over the past 18 months, Badrichani said. Still, “there is a long way to go” for European economies and markets to fully recover.

Euronext’s pipeline of initial public offerings is the strongest it has been in six or seven years, factoring in both number and size of deals, said Dominique Cerutti, chief executive of the pan-European exchange company. The IPOs can help foster a ‘virtuous circle’ of a healthy market, in which supply can create new demand.

“It is a new chapter and a new era” as capital markets reconnect with the ‘real’ economy, and investors continue rotating from bonds and into stocks, Cerutti said.

Going forward, developing regulation stands to influence European markets, especially the latest iteration of Markets in Financial Instruments Directive.

“MiFID II is coming into focus,” said Blackrock’s Wiedman. The ruleset will transform liquidity in European equities and ETFs via more expansive reporting requirements, said Wiedman, who added that the retail distribution of financial products may also be affected.

 

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