Equity leadership likely to broaden out in remainder of 2009

European equities have enjoyed a strong rebound in recent months as business and consumer confidence indicators have started to improve, and investors anticipate the beginnings of a global economic recovery.

The genesis of this optimism lies in the re-opening of credit markets, aggressive reflation policies and a positive second quarter earnings season. The latter is partly due to the fact that managements have realigned companies’ cost profiles early and therefore surprised the market with stronger profits. However, with many stocks up close to 50% from their lows in March, the valuation case has certainly diminished after the strong rally and more recently, investors have become more cautious, locking in some profits. Given the depth and nature of the current recession, and the underlying ...