- They still expect QE to benefit the region's equities
- ING analyst says Euro Stoxx 50 will fall to 2,990 this week
The Mario Draghi-induced selloff in European equities is leaving strategists from UBS Group AG to JPMorgan Chase & Co. unfazed.
The Swiss and U.S. banks are among at least five that are sticking with their bullish forecasts on the region’s stocks after the European Central Bank president unveiled a boost in his stimulus package that fell short of expectations. Even with the worst week for the Euro Stoxx 50 Index since August, the strategists remain confident that the economic recovery will bear fruit.
“Nothing has changed materially in Europe at this stage,” said Emmanuel Cau, a European equity strategist at JPMorgan in London. “Clearly, in the short term, the unwinding of this ECB-driven bullishness could hurt some of the exporters, which have been largely benefiting from the fall in the euro. Next year, we still believe that the ECB will be market supportive.”
The Euro Stoxx 50 tumbled 4.5 percent last week after the ECB decided to keep its monthly asset purchases unchanged, even as it lowered its deposit rate and said it will extend its quantitative easing until at least March 2017. Yet the central bank also signaled confidence about its stimulus program, raising its economic growth forecast for 2017 to 1.9 percent, from 1.8 percent.
The stock gauge rebounded 0.9 percent on Monday.
UBS, JPMorgan, Citigroup Inc., Credit Suisse Group AG and HSBC Holdings Plc all confirmed their overweight stance on Europe’s equities after the ECB decision. And with a valuation of 14.5 times estimated profits, companies in the Euro Stoxx 50 are also more attractive than those in the Standard & Poor’s 500 Index, trading at 17.7, data compiled by Bloomberg show.
For others, the ECB’s disappointment led to a questioning of their outlook. Like many, ING Groep NV’s Roelof-Jan van Den Akker got caught off guard on Thursday. Just minutes before the rate decision, he changed his short-term rating on the Euro Stoxx 50 to what he called “up” from “down,” saying it suggested a risk-on scenario for the days and weeks ahead.
“I can hardly imagine I have been that wrong in the past few years,” Van Den Akker, the head of technical analysis at ING in Amsterdam, wrote in an e-mail on Friday. “This is signaling a trend change, which should last at least months.”
Now he’s forecasting the Euro Stoxx 50 will drop another 10 percent by this week, before rebounding through the end of the year and falling again -- a “sharp selloff” -- beginning in January, according to his note.
Ralf Zimmermann, a strategist at Bankhaus Lampe in Dusseldorf, focused his bearish call on German stocks. Investors should sell, he wrote on Friday, before the euro’s benefit to exporters dissipates and the benchmark DAX Index falls below 10,000 in the next two months -- 7 percent lower than where it ended last week. And with the Federal Reserve on the cusp of pushing through higher rates for the first time since 2006, bearish sentiment might spread from the U.S. to hit the DAX further, he said.
“It was the most crowded trade ahead of the ECB: DAX long versus euro short,” Zimmermann said. “For the first time, Draghi underdelivered. The second, even more important issue is that all eyes are now moving to the U.S.”
Morgan Stanley had already been taking a less bullish stance on Europe, and after Draghi’s move the bank said it maintained that view. In a Nov. 29 note, it said it trimmed its allocation to the region’s equities, preferring instead U.S. stocks. Even an improving economy won’t be enough to boost Europe’s shares, in part because it sees the ECB’s stimulus program hurting lenders, the biggest component of the Euro Stoxx 50, the strategists wrote.
St. Galler Kantonalbank AG’s Thomas Stucki said he ignored the ECB’s hints that it would expand its QE package, and bought up more U.S. and emerging-market stocks in the last two months.
“It’s very difficult to bet on a one-time event like the ECB or Fed and guess what could happen,” said Stucki, chief investment officer at St. Galler Kantonalbank in Zurich. “It will become more difficult to move the markets just with words.”