Midyear European Equities Outlook: In the Sweet Spot | Morgan Stanley (2024)

FAQs

What is the outlook for the European equities? ›

European equities are fairly valued, with bluer skies looming on the horizon for the rest of 2024. The European equity market has been trading at fair value as a whole, with investors enjoying nearly 20% gains within the past 12 months.

The latest update to Morgan Stanley's European Top Picks list includes six new stocks: Barclays, Fresenius SE (ETR:FREG), Getlink, Rheinmetall, Saipem, and Total. These companies were selected based on their strong fundamentals, strategic positioning, and potential for outperformance in the current market.

We think earnings growth is likely to stay weak for the next few quarters before improving in the second half of 2024. Earnings expectations for 2024 have started to come down, but we think they will come down a bit more. Therefore, we are slightly below consensus for 2024 and 2025 earnings.

European equities should benefit from the recent turn in the interest rate cycle, while modest valuations and a combination of high dividend yields and share buybacks offer further support for the asset class.

We expect quarterly growth rates of 0.3%–0.4% (nonannualized) for the rest of the year, which would leave euro area growth at 0.8% for 2024 as a whole. Sources: Vanguard calculations using data from Eurostat as of June 7, 2024.

European Equities are Undervalued Compared to Fair Value

On a sector basis the picture is more mixed. The healthcare and industrials sectors are very slightly overvalued, with the other sectors broadly in-line with the market valuation, at or around a 5% discount to their fair values.

Morgan Stanley economists anticipate U.S. growth of 2.6% in 2024 and 2.1% in 2025, compared with 2.5% in 2023. Year-over-year growth is likely to moderate toward the end of 2024 with fourth-quarter GDP growth of 2.1%, compared with 3.1% in the fourth quarter of 2023.

Why are European stocks underperforming? ›

Value versus momentum

Part of the reason for this underperformance and the discounts with the US has been the nature of European markets, which tend to be dominated by more industrially based value stocks. Much of the wider stock market rally has been generated by technology-focused growth stocks.

Overall, we expect the eurozone's gross domestic product to grow by 0.8% this year. Next year, private consumption should remain robust, and investments will likely strengthen, as financing conditions ease, driving GDP growth of around 1.4%.

Sept 3 (Reuters) - Europe stocks fell on Tuesday in their worst session in nearly a month, as U.S. manufacturing data brought concerns about a slowdown in global growth back to the forefront ahead of an all-important jobs report on Friday.

EU Stock 12 Month Forecast

Based on 2 Wall Street analysts offering 12 month price targets for enCore Energy in the last 3 months. The average price target is $6.11 with a high forecast of $7.04 and a low forecast of $5.18. The average price target represents a 97.12% change from the last price of $3.10.

Our outlook on the European bond markets remains positive despite the risks from inflation and politics. High yields translate into an attractive carry (income) for investors. Meanwhile, improving economic data and continued solid corporate results suggest a recession seems unlikely.

European ETF market forecast to grow 15% annually over next 5 years, reaching $4.5trn by 2030.