Recently, we doubled our overweight in Japanese equities (to +2) and cut our small overweight in Europe to neutral. This is for short-term reasons (on economic surprise indices, earnings momentum, price momentum). For Europe, we continue to have a constructive medium term view: the Eurozone may witness the biggest earnings growth over the next 2 years. 

## Economic surprise indices 


## Why we have downgraded European equities to neutral 

Within a positive environment for risky assets we have downgraded European equities from a small overweight to neutral. This is primarily based on the rapid weakening of relative data. Yes, economic data are coming in on an improved trend, but in general in Europe the published data are far below expectations. Especially the hard data disappoint. The economic surprise index (see graph) fell to its lowest level in a year. This stands in contrast to, for example, Japan where data are beating expectations. The second reason is weak earnings momentum. We think that the European earnings will lag. We see two reasons for this. The first is the weak nominal growth environment. The second is the stubbornly strong Euro. This is in our view a temporary phase. 

## Flow momentum in European equities has turned negative 

A third reason for downgrading European equities has to do with investment flows and investor positioning. According to the latest surveys the Eurozone is a broad consensus overweight. At the same time, flow momentum has turned negative. This is a cautious signal to us. The resulting loss in price momentum simply adds to this caution. The ECB announcements have only had a very temporary positive impact. Of course, increased political uncertainties as a consequence of the plane disaster in Ukraine are also negative. Since mid-June, Europe has underperformed global equities by approximately 3%.