Expectations still point to outperformance European stocks against its counterpart in the United States amid optimism that markets will recover with the reopening of China and expectations of better profits, according to Morgan Stanley.
The bank’s chief European equity analyst, Graham Secker, said that falling natural gas prices and resilient economic data are also contributing to the recovery in European markets that began three months ago.
This allowed the MSCI Europe index to breach its near-flat 100-week moving average for the first time since the global financial crisis.
From now on, Seker argues, monetary policy will be tighter, fiscal policy will be looser, and value stocks will no longer play a secondary role compared to growth stocks.
He conceded that if economic data comes out worse than expected, gas prices rise again, or European corporate earnings take a hit due to a stronger euro, all of these factors could lead to some profit-taking in equities.
Experts from Goldman Sachs and Citigroup joined the list of optimists about European stocks this month and do not predict the continuation of the record rise in the new year in Europe.
The Stoxx Europe 600 Index has gained around 30% in dollar terms since the end of September, outperforming the 12% rise in the S&P 500. However, stock valuations are still below their US counterpart.
Not everyone agrees with this optimistic outlook, however, and JPMorgan Chase experts expected the rally to fizzle out during the first quarter amid persistent risks from hawkish policies from central banks and volatile inflation and corporate earnings.
Analysts at Bank of America warned on Friday that European stocks do not fully reflect the true economic situation.