Strate­gists warm up to Euro­pean stocks just as rally catches up

Malta Independent - - BUSINESS & FINANCE -

Re­as­sur­ances that cen­tral-bank largesse will keep sup­port­ing growth have helped re­vive a rally that stum­bled in the past two weeks. The Bank of Ja­pan on Wed­nes­day shifted the fo­cus of its stim­u­lus from ex­pand­ing the money sup­ply to con­trol­ling in­ter­est rates, while the Fed trimmed its pro­jec­tion for hikes next year to two from three. Con­tin­ued global sup­port is good news for Europe, where eco­nomic data are back to miss­ing fore­casts. Now the Stoxx 600 is up 1.2%, head­ing for its big­gest weekly rise in two months. It’s still down more than 5 per­cent this year.

The av­er­age year-end fore­cast still im­plies a more than 5% de­cline in the Stoxx 600 this year, which would be its first since the height of the sov­er­eign-debt cri­sis. Last month, strate­gists ex­pected a 8.6% slump. For Ger­many’s DAX In­dex, the av­er­age es­ti­mate rose to 10,554 – which would mean just a 1.8% slide for 2016 – from 9,988 in Au­gust.

Con­cerns about the ef­fi­cacy of Euro­pean Cen­tral Bank stim­u­lus, paired with a bank­ing cri­sis in Italy, the UK vote to leave the Euro­pean Union and po­lit­i­cal ten­sions from Spain to Ger­man have driven away bulls that poured record money into the re­gion’s funds in 2015. Now they’re back­ing off like never be­fore, with a Bank of Amer­ica Corp. report last week show­ing 32 straight weeks of with­drawals.

Yet the ex­treme pes­simism that sent the Stoxx 600 down as much as 17% in Fe­bru­ary has eased. Since the low that fol­lowed the Bri­tish ref­er­en­dum in June, the gauge has re­bounded 12 per­cent and an­a­lysts have be­gan tem­per­ing their bear­ish profit out­look for its mem­bers after 15 con­sec­u­tive months of down­grades. With a val­u­a­tion of about 15 times es­ti­mated earn­ings, Euro­pean shares are cheaper than those in the S&P 500 In­dex or the MSCI Al­lCoun­try World In­dex, data com­piled by Bloomberg show.

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