A lesson for Europe from 1995

A LESSON FOR EUROPE FROM 1995

As U.S. stocks shudder at the prospect of the Federal Reserve keeping interest rates high, Morgan Stanley have delved into history for reasons investors in Europe might not have to worry.

MSCI’s global share index EURONEXT:IACWI is down more than 4% this month so far, dragged down by selloffs of crowded U.S. tech stocks. Europe’s STOXX share index SXXP has fared better, with a 1.5% fall and strong gains for energy and basic materials exporters that depend on global growth

Morgan Stanley sees parallels with early 1995, when U.S. rate cut hopes were quashed by strong economic data but European stocks rallied anyway.

“Ultimately, as long as the reason for the shift in monetary policy was better economic data, European equities continued to grind higher,” Morgan Stanley said.

“The mid-1990s remains the best historical guide for the current market set-up.”

European equity strategists at Bank of America disagree, however, noting that while high U.S. interest rates have not hit the world’s largest economy yet, deterioration remains likely and European stocks could fall 15% from here.