The ‘older’ European economies will provide positive hunting grounds for equity investors in the coming year as the region is moving into a supportive phase of high growth.
That is according to Sandrine Perret, Europe strategy, CIO Office IWM at Credit Suisse. In Perret’s latest outlook, she said the region appeared to have recovered from a year of poor performance in equities.
‘Last year’s lacklustre performance of European equities relative to its global peers looks to be firmly in the past. Fuelled by continued momentum in economic data and earnings in 2018, we expect European equities to outperform global stocks this time round.
‘The European economy extended its robust upswing at the end of last year driving our economists to upgrade their 2018 growth forecasts. Our forecast for a sustained economic recovery in Europe is expected to particularly boost financial assets in the region.
‘Bearing any sudden change in the ECB monetary policy stance, 2018 offers the potential for a strong performance in the “Old World”.’
Perret said Credit Suisse expects the euro to rise in 2018, with a stable euro at around 1.20 to the US dollar over the next few months would further aid upward growth.
‘An acceleration in eurozone growth in 2018 to 2.6% with positive growth in Germany and France underpins our preference for equities in core countries. Higher operating leverage and a cyclical tilt to the region’s sectoral composition will drive returns.’
At a regional level, Perret said the bank is maintaining a positive outlook on French equities. ‘Relatively stronger economic surprises, PMIs and changes in consensus expectations do not appear to have yet been fully rewarded via equity performance during the last six months.
However, Perret added, there is need for caution around Italian assets ahead of the country’s 4 March election, where a hung parliament is the most likely outcome.
‘The election could provide a buying opportunity, investor’s hedging ahead of the event and ongoing pre-election uncertainty currently warrant a cautious stance on Italian equities and sovereign spreads could widen from actual levels.’
Elsewhere, Perret said Swedish equities are currently trading at attractive valuation levels compared to the rest of Europe, while a high exposure to industrials where the cycle looks positive is viewed as a tailwind.
On the flipside, she added, Norway’s oil dependence could provide a moderation in relative performance.
‘Norwegian equities posted a very strong rally in the second half of last year, benefitting from the recovery in energy prices. With long positions in Brent now extended the performance looks overdone and should lead to a correction, in our view.’