European stock markets rose for the fourth consecutive month

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As confidence in the region’s economic recovery increased and vaccination plans accelerated, European stock markets rose for the fourth consecutive month.

Since the end of April, MSCI’s broad measure of European stock markets has risen nearly 4%, and the year-to-date increase in US dollars has reached 12%. Exchanges in Frankfurt, Paris, Madrid, Milan and London all rose this month.

Although the European Union’s vaccination program is clearly behind other regions, the efforts of major countries to accelerate the promotion have boosted the confidence of traders. At the same time, economists predict that the economy will grow strongly this year.

The latest economic sentiment index survey released by the European Commission on Friday showed that confidence in the entire Eurozone in May was “significantly higher than its long-term average and pre-pandemic levels”, indicating that the outlook is improving.

Daniela Ordonez, an economist at Oxford Economics, said that the ESI data “confirmed that as the pace of vaccination accelerates and summer approaches, the euro zone economy is rebounding rapidly from the lockdown.” .

The stock markets of Spain and Italy, two countries that were hit hard during the peak of the coronavirus crisis, performed particularly well this month. In dollar terms, MSCI’s Spain and Italy indexes rose by about 6% in May. The euro has strengthened against the dollar this month, flattering returns.

Investors and economists are equally optimistic about the outlook for the UK, where the coronavirus vaccine is being launched faster than in continental Europe, and the government has lifted many social restrictions.

“We still believe that the UK stock market in general provides good value to global investors,” said Sharon Bell, a European strategist at Goldman Sachs. “Since the beginning of this year, we have seen the strongest inflow of foreign investors into the UK stock market since at least 2016.”

MSCI’s UK index rose 3.4% in May, thanks to the strong rebound of the British pound against the U.S. dollar.

Investors say that British and Continental stocks also look cheaper than Wall Street stocks, which makes these markets look more attractive.

Data from Goldman Sachs shows that the trading price of the MSCI European Stock Index is about 17 times the expected return next year. This is higher than the median of the past 10 years, but far lower than the expected price-to-earnings ratio of nearly 23 times US stocks.

The bar chart of forward price-to-earnings ratio shows that trading valuations in the European market are lower than those in the U.S.

Bank of America said in a report last week that even after this month’s strong gains, it remains “optimistic about European stock markets.” As the economic recovery in the region accelerates, the bank has advised customers to “overweight” stocks that are often associated with economic performance, such as banks and luxury goods sellers.

Trading was sluggish on Monday, and both the UK and the US were closed for public holidays.

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