Traffic runs along the Champs Elysee avenue near the Arc de Triomph in Paris, France on Friday March 19, 2021. French President Emmanuel Macron locks multiple regions, including the Paris area, slowing the country’s economic recovery as it battles to contain a third wave of the coronavirus epidemic. Photographer: Cyril Marcilhacy / Bloomberg via Getty Images
Bloomberg | Bloomberg | Getty Images
LONDON – European stocks hit a new record high on Thursday and analysts are confident there will be further upside as prices remain low relative to the US
Pan-European Stoxx 600 hit a high of 438.29 on Thursday, beating levels from late February 2020, just before stocks in the region sold out as the coronavirus pandemic hit its nations hard. Thursday’s move marks a jump of more than 55% from a pandemic low of March 18, 2020.
“The next two years should have a positive impact on euro area stocks,” BCA Research analysts said in a statement on Monday. They said this was partly due to the expectation that the cost of borrowing around the world will rise, making certain stocks like financials and run-down sectors more attractive than bonds.
“In addition, European stocks are exceptionally cheap, which underscores their appeal as a game of returns,” said BCA analysts.
JP Morgan analysts also said Monday that they see an uptrend of 3% against the European Stoxx 600 this year. At the end of March, analysts at Bank of America went even further and estimated the largest European index to rise by 7% by the end of summer.
“European equities are expected to benefit from a sharp acceleration in euro area GDP (gross domestic product) growth in the coming months, but this is due more to the boost from the reopening and support from a strong US recovery rather than a US function . ” Dispersion of NGEU funds, “two Bank of America analysts said in a note at the time.
The EU agreed last year to raise € 750 billion (US $ 897 billion) from public markets in so-called next-generation EU funds. However, it is unlikely that the money will be paid out before the summer months.
Roger Jones, Head of Equities at London and Capital, wasn’t quite as optimistic, however.
“Although we’ve seen an index rebound in the index, there is still a way to make a profit rally,” he told CNBC on Thursday morning. “This is expected to happen next year when estimates of market outcomes are expected to be above 2019 levels,” he said, but warned, “If this does not happen, the rebound in index price levels could come under pressure.”
Europe versus USA
European companies are expected to do better in the coming months. Goldman Sachs analysts forecast earnings per share growth of 40% in Europe this year.
Companies benefit from the economic recovery, the region’s long-awaited financial plan, and the intensification of the vaccination campaign. Last month,
In a statement on Monday, Goldman analysts said the euro area should “recover strongly” into the summer. “Europe continues to have a strong discount to the US market,” said Sharon Bell-led analysts in the statement.
U.S. stocks topped their February 2020 levels in November – five months ahead of Europe – and have continued to rise since then.
That broad uptrend in the United States came after Joe Biden won the presidential election, and the positive sentiment was further bolstered by his $ 1.9 trillion stimulus plan already in place across the country. As a result, the S&P 500 is currently trading more than 20% higher than it was in November.
The recovery in Europe has been slowed by the introduction of vaccines that have lagged in other parts of the world and a third wave of infections that has led to re-locks in a number of countries.
“The US is getting a boost from a possibly excessive fiscal stimulus, while continental Europe is being slowed down by slow vaccination progress,” said Holger Schmieding, European chief economist at Berenberg, about the different market movements.
“The introduction of vaccinations in Europe is not picking up speed, however, and the economy in the euro zone will also pick up again soon, probably in May. European markets therefore have some catching up to do.”
The introduction of the vaccine is critical
The International Monetary Fund announced on Wednesday that European economies are expected to return to pre-crisis levels in 2022. The fund expects the continent to grow 3.9% over the next year. However, these prospects depend on a successful introduction of vaccines.
“It is not known how quickly the third wave can be defeated, which we do not have in the forecast, and that is certainly a downside risk,” Alfred Kammer, director of the IMF’s European division, told CNBC’s Joumanna Bercetche.
“There is also a downside risk that vaccination is slower than we all currently expect,” he said, adding, “We have to be ready for the virus to surprise us again.”
The European Commission plans to vaccinate 70% of the adult population in EU countries by the summer. However, this forecast will also depend on whether the manufacturers of the recordings meet delivery expectations.
AstraZeneca has released far fewer doses than EU states hoped, and earlier this week Johnson & Johnson said the launch of its Covid-19 vaccine in Europe would be delayed after US medical authorities raised concerns about possible side effects would have. The J&J shot was particularly popular with many governments in Europe as only one vaccination is required.