Stocktake: European stocks ‘finally ready to rebound’

Stoxx 600 had its biggest-ever monthly advance in November

Barclays forecasts that European earnings will spike by as much as 45 per cent in 2021. Photograph: iStock

Barclays forecasts that European earnings will spike by as much as 45 per cent in 2021. Photograph: iStock

 

European stocks were out of favour throughout 2020 until November’s rip-roaring comeback. The sheer extent of the turnaround – the Stoxx 600’s 16.7 per cent gain was its biggest-ever monthly advance, while energy and financial indices enjoyed astonishing gains of 34 and 26 per cent respectively – raises the question: is it too late to rotate into the previously unloved European market?

Not necessarily. The market rotation out of growth and into value has been violent but not climactic: momentum stocks are still outperforming their value counterparts by 27 per cent this year, notes Bloomberg’s John Authers, so there is still time to benefit from a gradual normalisation of economic conditions in 2021.

Even after the recent rally, 2020 is likely to be the worst year for European relative-equity performance since the 1980s, Morgan Stanley notes in its 2021 outlook. It argues Europe is “finally ready to rebound”, driven by earnings growth of 30 and 20 per cent in 2021 and 2022, respectively.

Barclays is even more enthusiastic on the earnings front, forecasting in its 2021 outlook that European earnings will spike by as much as 45 per cent in 2021.

The road to normalisation is likely to be “bumpy” and bullish market expectations “raise the bar for positive surprises”, but favourable financial conditions, pent-up demand and ammunition from central banks and governments can sustain the recovery.

Safe havens are still crowded so there is room for further rotation into cyclical stocks.

“The unwind of the two-year-long flight to safety might just be starting,” says Barclays.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.