Credit Suisse is Bullish on European Stocks

Most major developed European equity indices are lagging their US peers this year. While the S&P 500 is in the positive territory year-to-date major European benchmarks are in the red as shown below:

UK’s FTSE 100:  12.1%
France’s CAC 40: -3.4%
Germany’s DAX Index:  -1.6%
Spain’s IBEX35 Index: -8.2%
Stoxx Europe 600: -6.3%

Source: WSJ

Though investors’s current fears about European stocks are understandable Credit Suisse is actually bullish on them. From a CS article:

Investors, however, seem to be misreading the tea leaves, and have of late been selling European stocks in droves. Year-to-date outflows as a proportion of assets under management are at their highest level in a decade. Given the pessimistic mood, the market-implied rate of GDP growth in the Eurozone currently stands at zero, but Credit Suisse believes the European economy will actually grow 1.5 percent in 2017.

Another reason for optimism? European companies are more exposed to emerging markets than either Japanese or American firms, with developing countries accounting for one-fourth of European sales and 11 percent of Eurozone GDP. That hasn’t been an advantage in recent years, as the steep decline in commodity prices and sluggish global growth sent many emerging markets reeling, but it will be going forward. Currencies in the developing world are stabilizing, and growth is accelerating. So Euro zone stocks are worth a look. And here is what you’ll find: European stocks are much cheaper than U.S. equities, trading on a 19 percent discount on a 12-month forward price-to-earnings discount, or 7 percent after adjusting for sector differences. Continental Europe is one of only two regions in which the Global Markets equity strategists recommend an overweight position.

Source: Unshakeable Europe, The Financialist, Credit Suisse

I have written many times that some of the large-cap firms the continent have strong presence in emerging markets, For example, Europe-based consumer goods multinationals are big players in emerging markets due to historical ties of operating in those markets.

For investors looking to consider stocks from the continent, here are some options:

Consumer Staples: Unilever NV (UN), Nestle SA (NSRGY), Unilever PLC (UL)

Household goods: Henkel AG & Co KGaA (HENKY), Reckitt Benckiser Group plc (RBGLY)

Consumer discretionary:b Heineken NV (HEINY), British American Tobacco PLC (BTI), Anheuser-Busch InBev SA/NV (BUD), Diageo PLC (DEO)

Pharma: Novartis AG (NVS), Roche Holding AG (RHHBY), Novo Nordisk A/S (NVO)

Disclosure: Long RBGLY


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