Credit Suisse ups Continental European equities to 'outperform'
By Michele Maatouk
Date: Thursday 20 May 2021
(Sharecast News) - Credit Suisse upgraded its stance on Continental European equities on Thursday to 'overweight' from 'benchmark', pointing to a catch-up in economic growth, valuation and excess liquidity, among other things.
"The UK has been our major regional overweight, and we now add Continental Europe as it scores a close second on our composite scorecard," it said.
The bank noted that European GDP is 5.5% below the previous peak while the US is back to previous peak but said there is now a potential catch-up in Europe on the basis of the vaccine rollout, the fiscal boost and excess savings.
"Hence, European PMIs are set to continue to strengthen versus those in the US (and are currently consistent with circa 10% outperformance year on year)," it said. "There are also far fewer bottlenecks than in the US, with core CPI at 0.7% year on year and fewer signs of wage pressure." CS said this helps keep monetary policy loose.
In addition, it pointed to the fact that Continental Europe tends to outperform when bond yields rise.
Credit Suisse also noted that excess liquidity is running at 16.5% and is "extreme".
Valuation was a factor, with price-to-earnings discount for European equities at the lower end of its range.
"Relative earnings revisions are above global levels for the first time since Q419," CS said, adding that equity flows/buy recommendations are more muted than in any other region.
The bank is 'overweight' Southern Europe - Spain and Italy - and overweight Sweden and Germany, although it has cut back its overweight in Germany.
"Spain and Italy should see the largest recoveries in GDP (on the back of their tourism exposure), have outsized exposure to banks and attractive valuations," it said.
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