Eurozone stocks have risen higher this year, with growing groups of investors now betting on future profits as the bloc’s slow exit from the coronavirus epidemic slows.
The MSCI EMU stock index in eurozone companies has jumped almost 13 percent against the US dollar since the end of last year, about two percentage points higher than the similar level of shares of the developed world market.
Earnings in 2021 so far have pushed the MSCI EMU index, which captures foreign investors’ holdings in eurozone stocks, to its highest level since June 2008. This year, the excess comes after the index fell behind global stocks since the time of the alliance. Debt crises were threatening to destroy currency union a decade ago.
Investors are becoming more and more optimistic, they are encouraged when the eurozone appears double drop Following the delayed onset of the epidemic by Member States, coronavirus vaccines have been distributed by Member States, which have been blamed for poor supply and small public health campaigns.
“This is a real chance for Europe to deviate,” said Agnes Belaisch, chief strategist at Barings. “And this has no price at all on stock exchanges.”
About 65 percent of those polled by Bank of America European Fund executives said they did not expect European stocks to peak by the fourth quarter at the latest.
“Europe has been neglected for many years,” said Bastien Drutt, CPR strategist at fund manager. “It simply came to our notice then. I think it can be achieved now. ”
The growing outlook for many of the fund’s executives is based on expectations that the eurozone economy will start recovering faster in the coming months as the epidemic recovers.
Alliance leaders said business activity grew at the fastest pace in three years this month, with the fastest growth in new orders since June 2006, according to the IHS Markit Purchasing Managers Index. last week,
In early May, the European Commission forecast that the eurozone economy would grow by 4.3% this year, after concluding a 6.6% deal in 2020.
Sustainable economic growth is expected to provide corporate income. According to data collected by FactSet, MSCI Europe Wide Index companies, with the exception of the United Kingdom, are expected to generate an average revenue growth of 41.2% in 2021, compared to 33.3% in the United States.
At the same time, analysts say that European stocks seem more expensive than Wall Street rivals based on key valuation criteria.
The MSCI index of eurozone stocks traded at a cyclically adjusted price-to-earnings ratio of 21 times, according to asset manager Amundi. For the United States, the so-called Cape ratio is 35.3 times.
The Cape Ratio, a carefully crafted tool by economist Robert Schiller that compares prices to the average profit over the past decade, can be seen as a buy or sell signal when it deviates significantly from its long-term average.
“Europe is our favorite region right now,” said Azat Zan Angana, Schroeders, a senior European economist who manages the fund. “The economy is really growing, the ratings are much more attractive than the US is now.”
Some investors are concerned that European stocks have already outperformed companies’ expected year-over-year earnings, while others fear a sudden change in US monetary policy that could affect all major global stock markets.
“We are concerned about the fact that it is becoming quite common in Europe, it is always a hindrance,” said Ro on Roe, Head of Multi-Year Asset Funds at Legal & General Investment Management. He calculates that “by sector by sector, price-to-earnings ratios in Europe do not differ much from those in the United States.”
Curhrid Osmani, Martin Curie’s global portfolio trust manager, warned that investing in Europe “is not as simple as looking at the eurozone economy”. Any quick move by the Federal Reserve to cut $ 120 billion a month in bond purchases will be felt by Europe.
“As far as stock exchanges are concerned, you get high levels of interconnectedness, so if the US falls, it’s hard to predict a major downturn.”
Concerns are mounting as Fed officials have repeatedly said they will see a steady rise in inflation to continue to support the US recovery. The European Central Bank has taken such a view even when prices are expected to slow across the bloc.
“When it comes to basic assessments, there is still room for improvement in Europe,” said Casper Elmgri, Amundi’s chief stock officer. “But Europe is not a refuge under market stress.”
Additional report by Valentina Romey, London