Goldman Sachs interceded for European stock indices “unloved” by investors
Goldman Sachs backed Britain’s FTSE 100 and Germany’s DAX, saying they will perform well in light of the expected recovery in European equities this year..
European markets kicked off well in 2021 with the rollout of the Covid-19 vaccine, the Brexit deal and democratic control over all three branches of the US government, giving investors hope for a sustainable economic recovery..
The Stoxx 600 pan-European index is up about 2.4% YTD in the afternoon, despite measures to contain the spread of the coronavirus in many major economies, most notably England’s strict nationwide lockdown..
Given the slow start of vaccine rollouts and the likelihood that a new strain of the virus will spread across the eurozone and tightening pandemic containment measures will last until February, Goldman economists are now forecasting a 0.1% contraction for the eurozone in the first quarter. 2021, when the UK will see a sharper «double recession» with a value of -1.5%.
The combination of all this and the adjustment of new trade barriers following the UK’s official exit from the EU on January 1 makes short-term economic outlooks negative, but Sharon Bell (Sharon Bell), Senior European Equity Strategist at Goldman Sachs, told CNBC that Britain’s FTSE 100 is a different matter, with about 80% of the index sales being made outside the UK..
Globally, Goldman expects annual GDP growth of about 6.5%, above consensus, and Bell said the FTSE 100 companies with significant international participation would benefit greatly from this..
«The second reason for us, and also for our international presence, is that this index has become very value-oriented. It is relatively cheap compared to S&The P 500, for example, even compared to European markets, it has many sectors that have been very disliked in recent years, such as finance and commodities, and we think they can recover», – she said on CNBC «Street Signs Europe».
Goldman also encourages investors to go long on the German DAX for the same reasons as, like the FTSE 100, it has performed below market in recent years and is similarly prone to healthy global gains..
«The DAX is also fairly inexpensive compared to the rest of Europe, not as much of a discount as the FTSE 100 in the UK, but the DAX is also reasonably priced compared to the rest of Europe.», – she said.
«Based on these two factors: we think of them as value indices, and we also think that they are very adapted to the growth of the global economy».
In Sunday’s Policy Brief, Chief European Economist at Goldman Sachs Sven Jari Steen (Sven Jari Stehn) highlighted a number of questions that could determine the trajectory of Europe’s recovery, such as whether, after a volatile first quarter, a boost in vaccinations can unlock accumulated spending on US services in the spring.
The European Union received an additional 300 million doses of Pfizer and BioNTech vaccines. The Moderna vaccine variant is currently approved in the UK, leading Goldman to estimate that 50% of the population will receive their first vaccine by April in the UK and in June in the EU..
According to the bank’s forecasts, this will allow to gradually resume the economy from March and sharply increase activity in the second quarter..
«In light of renewed (economic) weakness in the winter, we estimate that real GDP in the eurozone by the end of the first quarter will be 5.5% below pre-coronavirus levels, ranging from -4.8% in Germany to -8 ,9% in Spain», – written by an expert.
«Given this deferred demand – mainly in services – and last year’s experience in the third quarter, we maintain our forecast for a sharp acceleration in real GDP growth in Europe in the second quarter to + 2.7% for the euro area and + 5% in the United Kingdom.».
Goldman Sees `Big Rotation’ Into Value, Cyclical Stocks
Much of the recovery in global stock markets from the March 2020 crash has been driven by unprecedented fiscal and monetary stimulus from governments and central banks, and Goldman expects fiscal policy to remain highly flexible through 2021..
Steen suggested that vaccination-driven service recovery, expansionary fiscal policy and «supportive global environment» with higher US forecasts following a Democratic victory in the Georgia Senate elections will lead to global growth exceeding consensus forecast this year.
Goldman predicts real GDP growth in the eurozone at 5.2% in 2021 and at 4% in 2022, well above the consensus forecast, with the European bloc economy returning to pre-crisis levels later this year..