Goldman Sees Scope for European Equity Gains, Just Not Right Now

(Bloomberg) -- Goldman Sachs strategists are sticking to predictions that European stocks will rally, just not anytime soon.

As trade disputes escalate and economic data weakens, the near-term outlook for shares has worsened, but monetary policy is supportive and a recession in the U.S. or Europe is unlikely, Goldman strategists led by Peter Oppenheimer wrote in a note Wednesday.

They held on to a 12-month forecast for the Stoxx Europe 600 Index to rise to 405, implying about 10% upside from the last close, while lowering their three-month target, to just points above the gauge’s current levels.

Earlier this week, European equities tumbled to the lowest levels since December in a global rout sparked by intensifying U.S.-China trade tensions. Still, shares on the Stoxx 600 are cheaper than U.S. peers based on estimated earnings, and dividend yields are attractive.

“We do not see valuation as an impediment to performance,” Goldman strategists said. “The dividend yield is well above average and supported by cash flow.”

Goldman downgraded basic resources stocks to neutral and autos to underweight, noting these sectors are more trade-sensitive. Both are among the worst performers in the Stoxx 600 this month. Low bond yields and weak economies will continue to favor growth stocks, they said.

--With assistance from Justina Lee and William Canny.

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Monica Houston-Waesch, Paul Jarvis

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