Emerging-Market Reliance Seen as Winning Trade for Europe Stocks

  • Europe equities with EM exposure to benefit, Citigroup says
  • Vodafone, Continental and Orange among shares recommended

Bisat Says Brazil Crisis Likely to Reverse 'Green Shoots'

Boosted by bets for all-round global growth, European companies that sell to emerging markets have surged this year. There’s more to come, says Citigroup Inc.

Strong earnings momentum and continued economic improvement will lift the shares further, according to the bank’s strategists led by Jonathan Stubbs. An index of the 12 stocks highlighted by Citigroup last year and compiled by Bloomberg has surged 14 percent this year, outperforming the broader Stoxx Europe 600 Index. The measure includes lender HSBC Holdings Plc, carmaker Daimler AG and chemical company BASF SE.

The bank’s recommendations for emerging-market reliant European equities with high dividend yields include Akzo Nobel NV, Continental AG, Orange SA, Pandora A/S and Vodafone Group Plc.

Luxury shares, building-material firms and commodity producers are among sectors poised to benefit the most from two key trends, according to Citigroup. One is synchronized global growth, meaning the world economy doesn’t need to rely as much on the U.S. The other is the reduction of net equity through corporate actions such as share buybacks and deals.

A rally in the broader Stoxx 600 is showing signs of fatigue after surging to a 21-month high earlier this week spurred by receding political risk after the French election. The gains sent the Stoxx 600’s valuations to the highest since late 2015, on an estimated earnings basis.

For investors seeking ways to get cheaper exposure to expected growth, Citigroup recommends carmakers, miners, retailers and personal-and-household goods shares over sectors such as utilities, drugmakers, media and real estate companies.

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