Wall Street is wrong to be bullish on European stocks, strategist says

A photo taken on December 29, 2020 shows the skyline of Frankfurt am Main, West Germany, with (RtoL) the Frankfurt Cathedral, the main tower with the headquarters of Helabas and the Commerzbank tower.

DANIEL ROLAND | AFP | Getty Images

LONDON – Not everyone is optimistic about Europe for the rest of the year.

Peter Toogood, chief investment officer at financial services firm Embark Group, believes European stocks may well keep pace with US stocks in the coming months, but that doesn’t mean he shares Wall Street’s optimism for the region.

This year, for the first time in more than two decades, Europe is well positioned to outperform all major regions, according to analysts at Morgan Stanley. The investment bank believes that US markets are likely to get “more restless” in the coming months as inflation rises, pressure on profit margins mounts and quantitative easing may slow down.

Meanwhile, there is a “compelling” argument that Europe is the best performing region due to attractive valuations, stronger earnings per share growth and the launch of the massive EU fund to recover from Covid.

Separately, Goldman Sachs analysts have identified “cheap” stocks in Europe for the remainder of the year, while JPMorgan has named “cheap” stocks to buy in the region when the market collapses.

When asked if he would agree with the view that European stocks could soon decouple from the US, Toogood told CNBC’s “Squawk Box Europe” on Friday: “No, not me … I will not buy it this time.”

“I will happily acknowledge that we will keep up … There will be a Covid jump, fictional, they will pull themselves together, recovery is coming, but it will be very late. We will get involved.” in autumn and winter soon when I’m sorry (but) Covid won’t go away, “he continued.

“So, no, I’m not buying it. I think they were late for the party on the vaccines; very sad, and therefore recovery is being delayed,” Toogood said.

To date, around 33% of EU citizens have received at least one dose of a Covid vaccine, according to statistics from Our World in Data. In contrast, nearly 48% of the US population has received at least one dose of vaccine.

“What do you buy when you buy in Europe?”

The International Monetary Fund announced last month that Europe’s economic recovery from the coronavirus pandemic was on the way to returning to pre-crisis levels in 2022. The forecast was dependent on the Covid-19 vaccination campaign in the region as uncertainty about the health crisis will continue to evolve.

“I think the second problem remains: what do you buy when you buy Europe?” Toogood pointed to possible exceptions in the region for some “very strong” consumer brands.

“The banking sector? No, not really. I haven’t seen rate hikes in Europe for a very long time and they’re pulling back worldwide, if at all. Most Europeans in terms of banking and activities are going inward.”

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“There’s a massive discount gap, but that’s because a lot of stocks in the US are priced higher because they just grow better. I’m afraid there aren’t any FAANGs in Europe,” he continued, referring to the acronym for Facebook, Amazon, Apple, Netflix, and Google Parent Alphabet.

“So there are problems for the indices in Europe and the UK … that’s the reality. We don’t have disruptors and we don’t have exciting industries. It’s Asia and America where this action is taking place,” Toogood said.

– CNBC’s Lucy Handley contributed to this report.

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