The real drivers for eurozone returns

Mark Hargraves, senior portfolio manager at AXA Framlington (an expertise of AXA Investment Managers), reminds investors that corporate profitability, where Europe scores highly, drives equity returns, not GDP growth.

A common perception held by investors is that economic growth is good for equity shareholders.  As such, in the current environment, investment in faster-growing regions, such as emerging Asia, or, in the developed world, the US, is often preferred to what is perceived as structurally lower-growth Europe. However, it is perhaps worth revisiting this assumption as several academic studies have consistently shown that, not only is there no correlation between long-term equity returns and economic growth, there is actually a negative correlation.  So, what might explain this phenomeno...