Europe could overtake the US in stocks and growth this year
A trader monitors financial data on the Frankfurt Stock Exchange in Germany.
Alex Krause | bloomberg | Getty Images
Took last year American economy And markets On a bumpy ride – and Next year looks tough, too. It has led some strategists to say that 2023 could be Europe’s time to shine.
Zeynep Ozturk-Onlu, Deutsche Bank’s chief investment officer for Europe, the Middle East and Africa, sees Europe as outperforming both economically and capital markets, with deflation and recession fears “more rapid” in the US than in Europe.
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Ozturk Onlu said this is despite Europe facing its own challenges, including the ongoing war in Ukraine, an energy crisis and inflation that has yet to peak — and the ECB’s 2% target is unlikely to be reached until mid-2024 at too early.
“Europe has been in an expansionary fiscal policy position for a long time, especially because of the energy crisis,” she said, speaking on CNBC’s “Squawk Box Europe” on Monday. “But beyond that… Europe is also betting on China reopening and it will give a positive tailwind to the European growth story.”
European GDP growth last outpaced the US in 2017, although final numbers for 2022 have yet to be released.
Ozturk-Onlu pointed to the diversification of sectors in Europe compared to the United States and sustainable production growth, especially in Germany and France, as a case of more stable economic growth in the region.
And she continued: “When it comes to stocks, this does not mean that Europe is completely immune and in good shape, but in relative terms, the shift from growth [stocks] The value actually gives a little more opportunity to Europe compared to the US.”
So-called growth stocks – which include major US technology stocks – have been hit hard in 2022, as the US Federal Reserve raised interest rates affecting future earnings expectations. In contrast, value stocks tend to outperform as prices rise, and Europe broadly has a higher percentage of value stocks than its global peers.
In the year so far, in Europe Stokes 600 The index rose over 5% against 3.4% in the United States Standard & Poor’s 500.
Despite posting their worst performance since 2018, European stocks also outperformed the US last year, finishing 13% lower compared to 19.4% for the S&P.
“There is an opportunity that comes from the significant underestimation of Europe compared to the United States,” Ozturk-Onlu added. “That’s why we think the world outside the US will outperform the US, and Europe in relative terms, in stocks, will outperform.”
A brighter outlook, but the stakes remain
Deutsche Bank is not alone in its more optimistic outlook for Europe.
Further tightening by the Fed, fiscal stimulus in the eurozone, reopening of China providing a boost to Europe in particular, and lower energy prices are all cited by strategists as reasons why the European economy should outperform in 2023.
Some early data points look positive for the Eurozone compared to the US
The composite PMI numbers – a closely watched measure of economic trends – fell to 1 The lowest level in 4 months at 45 for the US in December. In contrast, the eurozone figures rose to a The highest level in 5 months is 49.3a hair’s width away from the 50th expansion zone.
Carsten Junius, chief economist at Swiss bank J. Safra Saracen, expects stable GDP growth in the eurozone this year, against a contraction of 0.5% in the United States.
However, he does not expect this to translate into an outperformance in the equity markets. One reason for this is the recent estimate of eurowhich tends to affect earnings with a three-month delay, he told CNBC via email.
A number of strategists have argued that although markets were driven by monetary policy in 2022, they will be more guided by economic data and earnings in 2023.
Among them is Joost van Linders, chief investment analyst at Van Lanschot Kempen. Unlike Junius, he was more cautious about the outperforming economy in Europe, but said stocks could be surprised to the upside.
“If there’s a recession in Europe and the US, it should downgrade in terms of weaker earnings across the board — the US looks more advanced in that sense,” he told CNBC by phone.
“But if the recession in Europe turns out to be so superficial, then since the discount from Europe to the US is as wide as ever, that could be an incentive to open up that valuation discount,” he added, “so long as the Fed doesn’t start cutting rates.” interest thus boosting US-based growth stocks.
Paul O’Connor, head of the multi-asset team at asset management firm Janus Henderson Investors, agreed that there are “good reasons” to believe that an era of outperformance in the US stock market has begun a reversal that could extend into 2023 and beyond.
“While the performance of US equities after the global financial crisis was buoyed by outperforming US earnings momentum, this effect has been amplified by a relative shift in valuation in favor of US equities. Both trends are now reversing. While US equities look very expensive compared to bonds and private equity In retrospect, stocks in most other markets seem to have a fair value.”