European stockmarkets in 2017 - nine charts that show the trends

The MSCI Europe and MSCI EMU indices made strong gains in 2017, returning 10.2% and 12.5% respectively. The economic backdrop remained very encouraging. The buoyant mood was supported further by a rise in shareholder activism in Europe, as well as merger & acquisition activity and share buybacks.

MSCI Europe and MSCI EMU 2017 performance

Economic recovery supported equity markets

The European economic recovery is gathering pace. The most recent GDP numbers from the eurozone have been strong with year-on-year growth of 2.6% in the third quarter. Forward-looking surveys such as industrial and services confidence and purchasing managers’ indices (PMIs) are all pointing in the right direction, implying growth is on track.

The better economic backdrop is helping to support demand. In turn, corporate profitability has been improving in Europe. This is partly due to better pricing power (i.e. the ability of firms to raise prices without denting demand). It is also due to operational leverage as spare capacity in the economy is utilised, meaning companies can produce more while keeping costs stable.

Eurozone GDP growth

European profit margins

The materials sector, which includes suppliers of the raw materials used in infrastructure projects, was one of the best performing sectors in 2017, up 18.7%. It was bettered only by the information technology sector, which rose 19.6%.

So-called “growth” shares, such as technology stocks, have been winners. Growth companies normally have earnings that are expected to grow at an above-average rate relative to the market.

The laggards have mainly been domestically facing businesses such as telecoms. Traditional income-paying stocks, such as healthcare companies, have struggled too.

MSCI europe sector performance

With the exception of Denmark, the eurozone stockmarkets outperformed the UK and the Nordics. Austria was the top gainer, with the Netherlands and Italy also strong, while the UK was among the laggards with a 7.4% return in euros (11.7% in sterling).

European country performance

Breakdown by quarter


The year started on a weak note, with negative returns in January, but stockmarkets picked up as the first quarter progressed. Economic data released during the period was largely positive. Leading indicators showed gains with the flash composite PMI reaching a near six-year high of 56.7 in March.

Composite PMIs

The European Central Bank (ECB) upgraded its 2017 and 2018 growth and inflation forecasts but pledged to keep existing stimulus in place until the end of the year.


Political risk was the focus in the early part of the quarter as the French presidential elections approached. However, centrist and pro-EU candidate Emmanuel Macron won a convincing victory and his new party also won a significant proportion of seats in the subsequent legislative elections.

Markets responded positively as this should enable him to push through his reform agenda and the risk of a eurozone break-up greatly diminished.

Macron’s success followed the Dutch elections where the centre-right gained victory in March, fending off the challenge from the anti-EU party led by Geert Wilders.

Economic news continued to be encouraging, with forward-looking indicators suggesting a pick-up in growth. The German Ifo business climate survey reached highs not seen since 1969, and went on to surpass its previous peak by the end of the year.

German Ifo survey

The UK stockmarket underperformed the eurozone as the UK general election unexpectedly resulted in a hung parliament, where no party had an overall majority. However, uncertainly was quickly removed as the Conservatives formed a minority government relying on the support of the Northern Irish Democratic Unionist Party.


European equities notched up a modest advance in the third quarter. The European Commission’s economic sentiment indicator rose to 111.9, its highest level since July 2007. Unemployment in the eurozone dropped to 8.9% in August - the lowest rate since February 2009.

Eurozone unemployment rate

The UK stockmarket wavered during the summer following June’s snap general election but recovered to end the period with a positive return. The UK stockmarket has been supported by the Bank of England’s monetary policy, which has included keeping interest rates low.


Pan-European equities eked out gains in the fourth quarter supported by ongoing loose monetary policy from the central bank. ECB President Mario Draghi announced that quantitative easing would be extended to September 2018 but that the pace of purchases would be reduced from €60 billion per month currently to €30 billion.

In Germany, talks over the formation of a new coalition government collapsed while the aftermath of Catalonia’s unofficial independence referendum caused some short-lived volatility.

The picture for European corporates remained bright with profit margins improving. The chart below shows that deflation of producer prices – sometimes referred to as factory gate prices – is at an end. Prices started rising towards the end of 2016 and have largely been on an upward trend ever since.

producer prices in europe

Higher producer prices are very important for companies as they pass these on to consumers. When prices are rising, consumers will make purchases earlier as they expect higher prices in future. If they expect prices to fall further, they will delay purchases. Assuming costs stay the same, higher sales prices result in an increase in profits for corporates. 

What should we expect next?

Please click here to read Outlook 2018: European equities by Rory Bateman, Head of UK & European Equities.