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World’s best rally at Morgan Stanley in Newton looking at Europe

(Bloomberg) – For so long lagging behind global stock markets, European stocks are back in favor and with Credit Suisse Group AG and Morgan Stanley joining an increasingly bullish chorus, investors are taking note. Eurozone blue chips have risen 13% so far in 2021, outperforming the S&P 500 in the first five months of the year for the first time since 2017 and outperforming all other major regional benchmarks. This coincided with a recent pickup in inflows into European equity funds, while the latest survey of global fund managers from Bank of America Corp. showed that eurozone equities are now the largest overweight to regional equities. the possibility for Europe to catch up with the United States as vaccination programs accelerate, ”said Catherine Doyle, strategist of the real return team at BNY Mellon’s Newton Investment Management, which overweight Europe relative to to global equities. so appealing right now is the vast presence of low-cost sectors susceptible to an economic recovery accelerated by a surge in vaccination efforts that initially followed the US and UK.The region is also less susceptible to concerns Inflationary inflation that has scared the markets of late, given the relative scarcity of hardest-hit sectors such as tech, these factors are contributing to historically low valuations. The Euro Stoxx 50 index is trading at around 17.6 times 12-month earnings, compared to 21 times for the S&P 500 and 26 times for the Nasdaq. Unlike most global indices, it has yet to hit its all-time high or even surpass its 2008 peak. Europe’s recent outperformance is only just starting to grab the attention of market players. Credit Suisse raised the overweight in continental European equities on Thursday, citing the potential for catching up with economic growth in the region that has lagged behind the United States, its exposure to the green energy boom and its weak positioning of investors compared to other regions. The United States on the pickup in profits as the Biden administration plans to raise corporate taxes. And US investment management firm Eaton Vance is “significantly” overweight Europe in global and international equity portfolios, according to Chris Dyer, director of global equities, who sees the region’s outperformance continuing relative to cash flows. of USEquity. equity funds have attracted inflows over the past six weeks. Yet there is still a long way to go to catch up with its peers. For 2021 to date, the region has attracted just $ 4.8 billion, compared to $ 181 billion invested in U.S. equity funds. Last year, investors withdrew around $ 43 billion from European equity funds, the most among major regions. International investors are also voting for eurozone stocks by stacking up in exchange-traded funds. The US-listed SPDR EURO STOXX 50 ETF is expected to experience its biggest month of entries since 2017 with around $ 300 million in new additions in May, while the iShares MSCI Eurozone ETF recorded this week its largest one-day inflow of $ 187 million since October 2019. Certainly, strategists polled by Bloomberg see limited opportunities for gains from current levels by the end of 2021, with an average forecast of 4,012 for the Euro Stoxx 50, down 0.3% from Friday’s close. This type of market could favor stock pickers over index followers. Newton’s Doyle likes automakers like Volkswagen AG which can thrive through adoption of electric vehicles, energy companies like RWE AG pushing forward to a transition to green energy, and budget airline Ryanair Holdings Plc, which it expects to benefit from increased passenger numbers as travel resumes. Volkswagen is down 12% from its April high and up 42% year-to-date, while RWE is down 5.6% this year and Ryanair is down 0.2%. Investors say it is net long on eurozone stocks and net-short in the US market because Europe is only now entering “final unlock”. READ: Over 1.54 billion hits given: Covid-19 Vaccine Tracker ‘In unlocking trade, mainland Europe has lagged behind US and UK given waves of infections and vaccine rollout, ”Newman said in a video interview. “We believe the time has come when the market is ready to look not necessarily this year, but 2022 and 2023, and start assuming a recovery for the less favored unlock areas of the market.” It sees Safran SA, a French aircraft engine maker, up just 3.4% this year, and Sodexo SA, a French food service and facilities management company, which gained 13% in 2021 but is down 10% from its peak in March, as some companies may benefit from the rebound. Kevin Thozet, member of Carmignac’s investment committee, believes that the European market is in a “sweet spot” because of its balance between cyclical and quality names, such as luxury companies, which make up a large part of the market. index. The French asset manager with 39 billion euros ($ 48 billion) under management owns shares that include LVMH, Hermes International and Ferrari NV, in addition to Safran and Ryanair. sector. There are tech companies in Europe, but they’re not that big. It hasn’t helped European stocks in the past, but there is a rotation in place right now and Europe is benefiting from it, ”Thozet said in an interview. region to return to pre-Covid levels by the end of 2021, according to Wei Li, chief global investment strategist at BlackRock Investment Institute. BlackRock took eurozone stocks to neutral in February and prefers them to the European credit market. “In addition to a more positive macroeconomic environment, we see valuations in the euro area as favorable,” she said by email. “We still expect a rapid recovery in activity from the second half of this year.” More articles like this are available at bloomberg.com Subscribe now to stay ahead with the most trusted source of business information.



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