Europe’s Stuck-in-a-Rut Stock Market May Stay There All Year
The consensus among equity strategists is that the European market is going nowhere for the rest of the year.
(Bloomberg) --
The consensus among equity strategists is that the European market is going nowhere for the rest of the year after their brisk rebound in the first half of 2020, although predictions range from Deutsche Bank AG calling for an 18% gain to Commerzbank AG’s forecast of an 11% slide.
The Stoxx Europe 600 Index will end 2020 at a level of 371, less than a point away from Thursday’s close, according to the average of 13 strategists surveyed by Bloomberg. They forecast a year-end level of 3,247 for the euro-area gauge Euro Stoxx 50, or about 2.2% below yesterday’s close. Deutsche Bank is forecasting a level of 440, the most bullish prediction among those polled.
While strategists in April predicted the market rebound, the Stoxx 600 has traded in a tight range -- in line with the average year-end target -- for the past three months. Investor optimism about an economic rebound has been bruised by rising coronavirus cases, a delay in vaccine progress and political risks from Brexit wrangling to the U.S. election. A skew toward value stocks has also held back gains for Europe, while Wall Street has notched up new records driven by growth shares.
“What do we need to go higher? As often: clarity!” said Oddo BHF strategist Sylvain Goyon. “Clarity on the sanitary front with the large scale availability of an efficient vaccine. Clarity on earnings rebound and that is dependent on the previous point especially for the most Covid affected sectors. And finally clarity on the U.S. election outcome.”
JPMorgan Chase & Co. strategist Mislav Matejka expects the Stoxx 600 to “remain range-bound into year end” given the risks ahead, combined with “rather complacent market sentiment.” He sees the U.S. staying the regional outperformer.
Investors are also turning less cheery. Allocation to the euro-area declined by the most of any region this month, falling 11 percentage points to a net 22% overweight, according to Bank of America Corp.’s latest fund manager survey. As for U.K. equities, they continue to hold the most underweight spot globally.
Fund flows show Europe is losing out to other regions. In a week that global stocks saw the biggest inflows in more than two years, the region’s equity funds bled $0.2 billion, according to Bank of America citing EPFR data. The Stoxx 600 fell for a second day Friday, trimming a weekly advance.
For the German DAX Index, strategists predict a year-end level of 12,482, suggesting a drop of about 5.5% from Thursday’s close. The benchmark has rallied about 56% since its March lows, outperforming both the Stoxx 600 and the S&P 500 Index.
The U.K.’s FTSE 100 Index, on the other hand, has lagged the wider recovery amid Brexit worries and a heavy weighting of value shares. It’s predicted to finish 2020 at 6,235 on average, implying a gain of about 3%.
For tables on the Euro Stoxx 50 and Stoxx 600 polls click here; for a table on the DAX poll click here, for a table on the FTSE 100 poll click here.
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