European equities set for best start to a year since 2009

by Jonathan Adams
European equities

The Stoxx Europe 600 Index gained 0.6% in London, taking the week’s gains to 3%

European equities are on track for their best first five days of a year since 2009 as investors predict coronavirus vaccination programs and government stimulus will drive a rebound in economic growth and corporate profits.

The Stoxx Europe 600 Index added 0.6% in London, taking the week’s rise to 3%. A benchmark tracking European tech stocks soared to its highest in almost 20 years as chipmakers were boosted by earnings reports from US and Asia bellwethers. Consumer discretionary and utilities were among other sectors gaining, while financials and energy slipped.

Markets are continuing to react positively to the prospect of added government spending in the US after the Democrats secured control of the Senate, according to Alexandre Tavazzi, global strategist at Pictet Wealth Management. The situation is “close to ideal” for stocks, as a lack of a strong majority will also make it difficult for Democrats to implement tax rises, Tavazzi said in written comments.

Optimism has prevailed since the first Covid-19 vaccine was announced in early November, according to analysts at HSBC. The European Union said Friday that it secured an extra 300 million doses of the shot produced by Pfizer Inc. and BioNTech SE, while the UK cleared Moderna Inc.’s vaccine.

European equity market momentum and possibly even the recent value rally may be sustained as earnings and economic growth look very strong coming off a low base, HSBC strategist Edward Stanford said.

Giles Rothbarth, manager of the BlackRock European Dynamic Fund, said he expects earnings to accelerate “across the breadth of the market.” Rothbarth favours cyclical exposure and companies with recovery potential, as well as firms that benefit from the region’s focus on improving environmental outcomes. Renewable energy, specialty chemicals and semiconductors are some areas offering the best opportunities, he said.

Among individual stocks moving on Friday, TUI AG surged 31% as market participants noted a technical short squeeze of the heavily shorted stock after the announcement of a fully underwritten share offering.

This article is for information purposes only.
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