This Isn’t the Way Stock Market Cycles Typically End

European equities are the great unloved asset class. But Dylan Ball, head of European Equity Strategies, Templeton Global Equity Group, thinks that status means there should be some opportunities to be found for long-term investors. He explains why he thinks the current stock market cycle still has some way to run in Europe and why he expects to see an uptick in cross-border merger and acquisition activity.

In our experience, stock market cycles end with a bang, not with a whimper. Typically, the end of a cycle is accompanied by irrational exuberance among investors and ever-increasing merger and acquisition (M&A) activity.

While we certainly appear to be in the late stages of the current cycle in Europe, the general absence of those heady conditions suggests there may be some way yet to run.

Of course, cyclical concerns are not the only considerations that have made European equities the great unloved asset class over recent months. Investors are also wary of the political backdrop in the region, including Brexit, Italian budget disputes, gilets jaunes (yellow vest) demonstrations in France and growing support for extreme political parties.

For us, the sheer unpopularity of European equities in the current environment indicates there should be some opportunities to be found.