On the verge of a European upgrade cycle
After four years of persistent growth disappointment, we believe that Europe is on the verge of an upgrade cycle. This will be one of the dominant factors influencing investment returns in Europe this year.
European economic momentum to gather pace
Irrespective of QE, we believe that the European economy will start to gain momentum over the coming months as the easing in financial conditions (lower euro, interest rates and oil) start to work through the system. Our economists highlight that their GDP indicator is consistent with 1Q GDP of c. 0.4%Q compared to their forecast of 0.2%Q.
Upgrades to European EPS ahead …
European net earnings revisions have been in negative territory since March 2011. Over the next 1-2 months we believe this series is likely to move into positive territory as analysts adjust their forecasts for the significant moves we’ve seen in FX, rates and the oil price.
… we lift our EPS growth forecast from 10% to 12% The prospect of stronger economic momentum, coupled with the sharp declines in the euro, rates and oil that we have already seen, lead us to increase our top-down 2015 EPS growth forecast from 10% to 12%. We also raise our price target from 1560 to 1580, implying 10% upside from current levels.
Growth upturn should support cyclicals
An upturn in European GDP/EPS would support our OW in cyclicals and should start to weaken the investment case for defensives.
Stock screens
Rising growth momentum should attract renewed interest in EU stocks. We screen for companies along the following lines: i) domestic cyclicals; ii) cheap cyclicals; iii) expensive defensives; iv) FX beneficiaries
After four years of persistent growth disappointment, we believe that Europe is on the verge of an upgrade cycle. This will be one of the dominant factors influencing investment returns in Europe this year.
European economic momentum to gather pace
Irrespective of QE, we believe that the European economy will start to gain momentum over the coming months as the easing in financial conditions (lower euro, interest rates and oil) start to work through the system. Our economists highlight that their GDP indicator is consistent with 1Q GDP of c. 0.4%Q compared to their forecast of 0.2%Q.
Upgrades to European EPS ahead …
European net earnings revisions have been in negative territory since March 2011. Over the next 1-2 months we believe this series is likely to move into positive territory as analysts adjust their forecasts for the significant moves we’ve seen in FX, rates and the oil price.
… we lift our EPS growth forecast from 10% to 12% The prospect of stronger economic momentum, coupled with the sharp declines in the euro, rates and oil that we have already seen, lead us to increase our top-down 2015 EPS growth forecast from 10% to 12%. We also raise our price target from 1560 to 1580, implying 10% upside from current levels.
Growth upturn should support cyclicals
An upturn in European GDP/EPS would support our OW in cyclicals and should start to weaken the investment case for defensives.
Stock screens
Rising growth momentum should attract renewed interest in EU stocks. We screen for companies along the following lines: i) domestic cyclicals; ii) cheap cyclicals; iii) expensive defensives; iv) FX beneficiaries