BlackRock Joins Growing Club of European Market Fans on Stimulus

(Bloomberg) -- BlackRock Inc. is the latest addition to the rapidly expanding group of market participants turning bullish on European assets.

“We are warming up to European assets as the region steps up its policy response and demonstrates relative success in tamping virus growth,” said BlackRock Investment Institute strategists Elga Bartsch, Mike Pyle and Scott Thiel.

BlackRock’s analysts gave their stamp of approval to the European Central Bank’s bond-buying program and to the region’s 750 billion-euro ($847 billion) recovery fund plan, as well as to the French and German fiscal stimulus. They also said that strict lockdown measures helped to effectively limit Covid-19’s spread in Europe and now that restrictions are being lifted, mobility has rebounded swiftly, signaling a quick recovery in economic activity.

The strategists maintain their overweight in European peripheral government bonds and are considering an upgrade to European equities, which they currently rate as underweight.

“Europe’s policy response to the virus shock was slow to get going –- but an impressive array of fiscal and monetary measures is getting into place to bridge the economy through the shock,” they said.

The world’s largest asset manager, overseeing about $6.5 trillion, is the latest in a string of strategists and investors including Goldman Sachs Group Inc., Morgan Stanley, Bank of America Corp. and Eaton Vance to have become more optimistic in the past weeks on European markets.

Goldman strategists led by Christian Mueller-Glissmann on Friday lifted the region’s stocks to overweight from neutral on a three-month basis, citing a pick-up in global growth, U.S. political headwinds and EU political tailwinds.

The Stoxx Europe 600 Index has outperformed the S&P 500 since mid-May, partially thanks to investor rotation into cyclical and cheaper value shares on optimism about a strong pick-up in economic growth. Market players are using their dry powder to buy the region’s stocks, boosting the allocation to European equities by 24 percentage points to a net 7% overweight, the largest increase in net weighting for any region this month, BofA’s investor survey showed.

To be sure, Goldman strategists are less convinced that Europe can outperform the U.S. on a longer-term basis, while noting that differences between the regions will diminish as European growth sectors rise in significance and as the area’s policy makers and politicians show their commitment to support its economy.

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