Wednesday, January 19

Get ready for another bull ride on the European stock market next year

Even locks and omicrons cannot derail strategists’ optimism that the recovery in the European stock market may extend into next year.

The benchmark Stoxx 600 index will gain 9.3% at 506 index points by the end of 2022 relative to Tuesday’s close, based on the average of 17 forecasts in the Bloomberg survey of strategists. That compares with average annual earnings of 4% over the past 20 years and would push the gauge to a new high.

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“We believe the positive catalysts have not been exhausted, and stocks are likely to move further next year, as stagflation fears recede, on both sides,” said JPMorgan Chase & Co. strategist Mislav Matejka, who has a target of 525 for the Stoxx 600. “The omicron variant is a wild card for this, but mostly in the short term, and is unlikely to change the rules of the game for the next year.”

After a huge 18% rally and several all-time highs this year, European stocks suffered a setback in November as the latest wave of Covid-19 and the emergence of the omicron variant led to further restrictions, fueling concerns that recovery could stumble. But strategists surveyed by Bloomberg see these risks as simply a temporary bump in the road and expect earnings growth, along with generous fiscal and monetary stimulus to support the rally in 2022.

For Barclays Plc strategist Emmanuel Cau, less complacency in the market about Covid-19 risks is a good thing, and he recommends that investors buy the dips.

“The new variants are a source of volatility, but the world is more prepared compared to February 2020,” said Societe Generale SA strategist Roland Kaloyan, who has a bright outlook for European equities thanks to strong balance sheets, increased margins. and high levels of cash.

“Companies have adapted to the limitations of viruses, while central banks and governments could support the market in the event of an adverse scenario,” he added, recommending adjusting portfolios towards cyclicals in 2022.

Strong earnings growth is one of the main reasons why European stocks may rise to new records next year. UBS AG strategists, led by Nick Nelson, forecast earnings growth of 15% in 2022, well above the consensus of 8%, but say market returns will likely be “anticipated” in the first half of 2022. before earnings momentum turns negative and the focus shifts to tightening monetary policy.

The optimism among strategists is even more evident in the survey’s median target for the Stoxx 600 of 520, which implies returns of 12% in the coming year. The survey targets range from 430 to 530, with Goldman Sachs Inc. and Bayern LB being the most bullish, while Bank of America Corp. and TFS Derivatives are the most bearish.

“We expect 2022 to be a year of recovery as growth slows toward trend in response to a fading of cyclical support factors, and the withdrawal of monetary stimulus causes real bond yields to rise,” Milla said. Savova, a Bank of America strategist. “The emergence of the omicron strain is not part of our baseline scenario but, if anything, it reinforces the notion that risks to growth prospects are increasingly skewed to the downside.”

Other highlights from the survey include:

  • For the Euro Stoxx 50, strategists see on average a 12% increase
  • For the DAX, strategists see an average increase of 11%
  • For the FTSE 100, strategists see an average increase of 8.6%

© 2021 Bloomberg

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