JP Morgan reiterates 'overweight' on pan-European Energy and Materials

Pan European small and mid-cap share outperformance year-to-date, as commodity prices rose again and the recovery in the Eurozone and its periphery got underway, was proof that a good stock strategy can help, analysts at JP Morgan said.

Already in 2015 there had been 1000 basis points worth of so-called 'alpha' between the best and worst performing small and mid-cap sectors, while small and mid-cap company share prices were 180 basis points ahead of those for large cap ones.

Energy, Materials, Technology and Consumer had been among the best performing themes year-to-date in Europe, analysts Eduardo Lecubarrri and Siddharth Jain said in a research note sent to clients.

Value, commodities and emerging-market exposure were ‘outperforming’, they added, although in April the largest “swing” was the comeback in periphery/France.

This should be no surprise: the Eurozone and periphery in particular is still at an early stage of recovery, outgrowing the UK and most other SMid markets in the world, trading at a discount, and benefiting from QE, a solid Balance Sheet, and the strongest April manufacturing PMI reading of all the major economies.

In the same note, JP Morgan stuck by its ‘overweight’ position of small and midcap stocks versus large-cap in the Eurozone, although their “key sector call” for 2016 was their 2016 outlook upgrade for energy and materials firms to ‘overweight’.

JP Morgan also reiterated its preference for the Eurozone versus the UK and on the euro area periphery/France relative to the so-called ‘core’ countries.