(Bloomberg) — Despite this year’s turbulence, market strategists expect European stocks to continue rising in 2022, helped in part by a boost in sectors most sensitive to the economic cycle.
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The Stoxx Europe 600 index will rise about 5.2% to 511 index points by the end of 2022 from Wednesday’s close, according to Bloomberg’s average of 19 survey forecasts. That’s above the average annual gain of 4% over the past 20 years and would take the benchmark to a new all-time high.
“European equities are expected to have a good year, albeit with lower returns than 2021,” Goldman Sachs chief equity strategist Peter Oppenheimer said in written comments. His target for the Stoxx 600 to 530 by the end of the year implies an upside of around 9%. And at JPMorgan Chase & Co., Mislav Matejka predicts gains of 7%.
After a 22% rally and several record highs in 2021, European stocks have had a volatile start to the year amid fears that soaring inflation and tighter monetary policy could derail the economic recovery. Growth stocks with high valuations, such as technology, have been particularly hard hit in anticipation of rate hikes, with investors turning to cheaper or so-called value stocks instead.
Still, a rising rate environment could become a tailwind for Europe. “Rising global interest rates and inflation expectations should also support the European market and some of the value sectors that remain attractive,” Oppenheimer said. The region remains cheap relative to history, bonds and the US market, even taking into account sector weightings, he added.
The Stoxx 600 trades at about a 25% discount to the S&P 500 index, based on a forward price-to-earnings ratio. That’s near the bottom of a 15-year range.
The bullishness of the strategists is even more evident when looking at the median number from the survey: 520 index points, suggesting a 7% upside. Targets range from 430 to 556, Bank of America Corp. and TFS Derivatives sharing the lowest forecasts while Oddo BHF is the most optimistic.
European equity funds saw their biggest inflow since June last week with $1.9 billion, according to data from Bank of America and EPFR Global.
There aren’t many negative voices out there, with just three strategists in the survey seeing downside ahead. Among them is Bank of America’s Milla Savova, whose target implies a 12% decline in 2022.
“We remain negative on European equities,” Savova said in written comments. She sees headwinds including rate hikes hitting valuations, a flagging economic recovery, rising input prices hurting margins and the end of the Stoxx 600 earnings upgrade cycle.
However, European equities remain an investor favorite for now, with polls released this month by Goldman Sachs and Morgan Stanley both showing their clients are tipping the region to outperform this year.
Other survey highlights include:
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For the Euro Stoxx 50, strategists see 5% upside on average
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For Germany’s DAX, strategists expect an average rise of 5.2%
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For Britain’s FTSE 100, strategists expect an average rise of 0.9%
For tables on the Euro Stoxx 50 and Stoxx 600 polls, click here; for a table on the DAX poll click here, for a table on the FTSE 100 poll click here.
(Updates with weekly flow data from BofA in eighth paragraph)
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