NEW YORK, Sept 14 —The global market selloff triggered by China last month hasn’t dented the confidence of European strategists, who bet strong earnings will propel the region’s stocks to their biggest rally since 2009.
The Stoxx Europe 600 Index will climb about 18 per cent in 2015, according to the average of nine forecasts compiled by Bloomberg, outperforming US equities and recovering all ground lost after China devalued the yuan in August. To do this, it will have to jump 13 per cent in less than four months.
The Standard & Poor’s 500 Index is predicted to rise 6.9 per cent this year.
“The call on Europe comes down to earnings being better than the rest of the world, and when we look at measures of valuation, the market doesn’t seem to be pricing that in,’’ Barclays Plc’s European equity strategist Dennis Jose said in a phone interview from London.
“There seems to be skepticism with the way the stock market is pricing Europe relative to other regions, while we think profitability will pick up.’’
Earnings of companies in the Stoxx Europe 600 will grow 35 per cent this year, according to data compiled by Bloomberg. That compares with 4.6 per cent growth for S&P 500 companies and a 2.4 per cent advance for MSCI Emerging Markets Index members.
The European gauge’s price-to-book value is the cheapest relative to the US since 1975, Jose said. European shares will probably end the year at an average level of 1.74, the lowest since 2012, compared with a ratio of 2.5 for US companies.
In addition, China’s economic deceleration will be gradual and offset by growth in Europe, according to Barclays and Societe Generale SA.
European companies will earn investors the best returns in the world as they benefit from expanding economies, a weaker euro and lower energy prices, said Roland Kaloyan, head of European equity strategy at Societe Generale.
“Taking a wine metaphor, it will be a vintage year for European equities,’’ Kaloyan said by phone from Paris.
“We’re seeing more upside in the euro zone than in the rest of the world.’’
Not everyone is so optimistic.
Citigroup Inc chief economist Willem Buiter last week forecast a global recession in the next few years. It will likely originate in emerging markets, with China in particular at risk of a hard landing, he wrote in a report.
Barclays’ Jose and SocGen’s Kayolan are among the more bullish strategists in the survey, predicting the benchmark will end the year at 430 and 400, respectively. UBS Group AG had the highest call at 440, while ING Groep NV had the lowest at 360. The divergence between the most and least bullish bets doubled to 80 points, compared with a July survey.
Strategists forecast the S&P 500 will rise to 2,200, which implies a 6.9 per cent gain for the full year, while predictions for Japan’s Nikkei imply an increase of about 21 per cent for the full year.
According to DZ Bank AG analyst Michael Kopmann, European stocks are attractive after sliding 14 per cent from their high following the Greek crisis and devaluation of the Chinese yuan.
“Now that we’ve seen a correction, we’re getting a good valuation on European stocks,’’ Kopmann said.
“After the correction, people start asking how much deeper can the market fall, and that’s when fundamentals come back into focus and we’re seeing good arguments there to support an increase.’’ — Bloomberg
