Is the European Market Starting to lag?

With the exception of the German Dax, European indices lagged those of other major markets in November. The Dax rose 3.9% over the month, which put it ahead of the FTSE 100 (2.9%) and the Nikkei (-6.3%), but well behind the S&P (5.7%).

The FTSE Eurofirst index could only manage a lacklustre 0.9%, although the French CAC and the Spanish IBEX both delivered around 2%.The weakness in the indices did not seem to be a reflection of any weakness in the economic data. Industrial production showed an increase for the fifth consecutive month, rising 0.3% in September over August. It remains 12.9% below last year and was slightly below expectations, but still showed the economy was heading in the right direction.

GDP figures for the third quarter showed the eurozone finally out of recession. As a whole, the region rose 0.4% for the three months to the end of September, bringing five quarters of negative growth to a close. The region was carried by Germany, which saw an impressive 0.7% rise in GDP, having also grown in the second quarter. Italy also fared well, rising 0.6%. The German move partly explains the relative outperformance of the Dax over other European markets.

France, having been one of the first to emerge from recession, reported significantly weaker data than expected. Its GDP rose just 0.3% - well below analysts' forecasts. Meanwhile Spain is still suffering from its slumping property market and growing unemployment.

A second lurch down for the region remains a possibility. The European Commission warned that the banking system was still in need of repair - otherwise credit availability will weaken and threaten the nascent economic recovery. The strong euro continues to remain a significant headwind, though data from eurozone manufacturers during the month suggested it might not be having as significant an impact as had first been feared.

There are some signs the recovery may still only be a function of the region's stimulus packages and has yet to generate sustainable economic momentum. Certainly the eurozone has seen little recovery in consumer spending - France saw flat consumer spending in the third quarter, while Germany's spending figures actually fell. The purchasing managers' index rose at its fastest rate in two years, but there was some loss of momentum, which spooked analysts.

Over one year, the Europe excluding UK sector has delivered 31.3% growth, marginally behind the UK All Companies sector, which has returned an average of 35.3% to investors. European Smaller Companies has returned an average of 50%, but it is still just behind the UK Smaller Companies sector.