Investors are betting that as the economy rebounds, the euro zone stock market rebound will accelerate


The Eurozone stock market has soared this year. As the EU emerges from the coronavirus pandemic more and more slowly, more and more investors are now betting on further gains.

Since the end of last year, the MSCI EMU index of euro area companies has risen by nearly 13% in US dollars, which is about two percentage points higher than similar indicators of global developed market stocks.

The gains so far in 2021 have driven the MSCI EMU Index, which captures the price return that foreign investors receive from holding Eurozone stocks, rising to the highest level since June 2008. This year’s outstanding performance is due to the fact that the index has lagged the global stock market since the European Union Group.The debt crisis threatens Deduction The currency union ten years ago.

As the Eurozone gets out of trouble, investors are becoming more optimistic. Double-dip recession The pandemic caused by the pandemic and member states blamed the shortage of supplies and irregular public health campaigns for the launch of the coronavirus vaccine after the launch was delayed.

“This is a real opportunity for Europe to take off,” said Agnès Belaisch, a strategist at fund manager Barings. “And it’s not fully accounted for in the stock market.”

In a recent survey of European fund managers by Bank of America, about 65% of respondents said that they expect European stock markets to peak until the fourth quarter of this year at the earliest.

“Europe has been neglected for many years,” said Bastien Drut, a strategist at fund manager CPR. “For a long time, it has not been the darling of the market. I think it can catch up now.”

The bullish outlook of many fund managers is based on the expectation that the euro zone economy will begin to rebound at a faster pace in the coming months as the recovery of the pandemic accelerates.

According to data released by the IHS Markit Purchasing Managers Index, executives of the group reported that business activity this month increased at the fastest rate in more than three years, and new orders increased at the fastest rate since June 2006. last week.

The European Commission (European Commission) predicted in early May that the euro zone economy will grow by 4.3% this year after shrinking by 6.6% in 2020.

Strong economic growth is expected to affect corporate earnings. According to data compiled by FactSet, in the MSCI Europe Index, companies excluding the United Kingdom are expected to achieve an average revenue growth of 41.2% in 2021, compared to 33.3% in the United States.

The CAPE line chart shows that European stocks are less

At the same time, analysts say that based on key valuation metrics, European stocks look cheaper than Wall Street competitors.

According to calculations by asset management company Amundi, MSCI’s Eurozone stock index is trading at a cyclically adjusted P/E ratio of 21 times. In the United States, the so-called Cape ratio is 35.3 times.

The Cape Ratio is an indicator closely followed by economist Robert Shiller. It compares prices over the past ten years with average returns. When it deviates from the long-term average, it can be regarded as a buy or sell. signal.

“Europe is now our favorite region,” said Azad Zangana, senior European economist at fund manager Schroders. “The economy is really picking up, and current valuations are more attractive than the United States.”

Some investors worry that European stocks have deposited the company’s expected profit growth this year in the bank, while others worry that a sudden change in US monetary policy will affect all major global stock markets.

The bar chart shows that Europe’s “reopening” industry is expected to rebound this year

John Roe, director of multi-asset funds at Legal & General Investment Management, said: “What we worry about in Europe is that it is becoming more and more popular and has always been a disadvantage.” He calculated that “on a sector-by-sector basis, European The forward price-to-earnings ratio is not much different from that of the United States.”

Zehrid Osmani, manager of Martin Currie’s Global Portfolio Trust, cautioned that investing in Europe is “not as simple as looking at the Eurozone economy.” He said that any swift action by the Federal Reserve (Fed) to reduce its monthly bond purchases of $120 billion will also put pressure on Europe.

“As far as the stock exchange is concerned, you get a high degree of correlation, so if the U.S. falls, it is difficult to foresee a major decoupling.”

At present, as Fed officials have repeatedly insisted that they will review what they believe is a brief jump in inflation in order to continue to support the recovery of the United States, the cone of concerns has been gradually eliminated. The European Central Bank holds a similar view, although it is expected that price growth will accelerate throughout the euro zone.

“When I look at fundamental valuations, Europe still has room to catch up,” said Kasper Elmgreen, head of stock at Amundi. “But in times of market pressure, Europe is not a paradise.”

Other reports by Valentina Romei in London


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