Strategists Curb Their Enthusiasm Over Euro-Area Stock Rally

(Bloomberg) -- European equity strategists are tempering their expectations for this year’s gains in euro-area shares.

While strategists still see the Euro Stoxx 50 Index exceeding its January peak before the end of 2018, they now see it climbing to 3,706, compared with a March estimate of 3,768, according to the average of 21 estimates in a Bloomberg survey. Societe Generale SA, HSBC Holdings Plc, Natixis SA and Commerzbank AG are among lenders that have slashed their forecasts since last month.

The moderated projections follow a three-week rally in the Euro Stoxx 50 as the gauge attempts to recover from its lowest level in more than a year. While most investors expect gains going forward, many see the weaker economic growth momentum in the region and the recurring hiccup of a stronger euro limiting the advance, particularly relative to stocks in other regions.

JPMorgan Asset Management is among investors that have recently curbed their optimism, lowering its stance on euro-area equities to neutral from overweight last month.

“While we still expect positive returns from euro-zone equities over the rest of the year, we believe euro strength could mean that U.S. and emerging-market equities can outperform,” said Mike Bell, a global market strategist at JPMorgan Asset, whose firm is overweight stocks in the U.S. and emerging markets.

Both the S&P 500 Index and the MSCI Emerging Markets Index are beating the Euro Stoxx 50 year-to-date. That’s as the pace of economic growth in countries sharing the euro shows signs of fading: momentum last month slowed to the weakest level in more than a year, while reports this week showed German investor confidence tumbling to its lowest level since late 2012.

The data have proved to be an issue for stocks, but not as much for the euro, whose strength has only added to pressure on equity markets. Members of the benchmark Stoxx Europe 600 Index get about half their sales from outside the region, which means that a stronger shared currency can take a toll on exporters’ profits.

The Euro Stoxx 50 held steady Wednesday, up 0.1 percent at 10:42 a.m. in London.

“While that’s not reason to think European equities won’t make positive returns, on a relative basis it argues for perhaps having the exposure overweight in some of the other regions,” Bell said, referring to the stronger euro.

©2018 Bloomberg L.P.

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