50% of experts believe that Europe will drop more in the final stretch of the year

The months that remain to end the year do not await overly optimistic views as far as the market is concerned. At least he thinks so 50% of analysts surveyed by elEconomista.es, which considers that the European stock market will descend even more than the current levels for the last quarter. To the same question, a 22% are confident that there will be no significant changes and the stock market will remain in the environment that it now travels. By contrast, another 28% of these experts have a more hopeful vision of the coming months and believes that the square of the Old Continent will come back by then.

If one thing is clear when reviewing what has happened to date, it is that 2022 is not making it easy for the stock markets, which have had to overcome one setback after another in these nine months. To the energy crisis that has devastated Europe since January 1, and that puts governments on the ropes, are added the geopolitical conflicts in the West and the escalation of prices – of which there are still no signs of slowing down –, which has forced the central banks to tighten monetary policy, with the latest announcement by the European Central Bank (ECB) of a rise of up to 75 basis points in interest rates, the strongest to date.

All this, a Molotov cocktail that leaves four of the main European stock markets at the gates of entering, and with some such as the Dax or the FTSE Mib already inside, in what is known in stock market jargon as a bear market, which is the environment transiting the bags that accumulate losses greater than 20%. The EuroStoxx –which yesterday touched annual lows– and the Stoxx 600, the two main references on this side of the pond, lose 22.1% and 19.9%% in 2022, with falls of 23.7% for the first since the maximums that it touched on January 5 and 21% for the Stoxx 600 from its sky, which reached on this same date.

“Despite the fact that we are going to enter the best seasonal period of the year, which is the last quarter, the market is mired in a difficult environment to rise, the reduction of liquidity by central banks, together with the aggressive increases Investors believe that companies will continue to reduce profits and therefore rethink company valuations The trend is downward in the medium and long term, and there are no signs at the moment that monetary policy will change within a period of six months, which is what the market tends to discount”, develops Sergio Ávila, IG analystIn this regard.

In this sense, from Diff Broker, who also believe that the European stock market will shrink even more in the coming months, argue that “among the factors that justify our response are the forecast of a hawkish monetary policy by the end of 2022 and 2023 to combat the high inflation rates that we currently have in most European countries”. To this, the experts add that, in addition, “we take into account that the tension between Russia and Ukraine has intensified so we can expect greater pressure on gas and oil prices that could further complicate the current situation”, they conclude.

Since XTB they also believe that the stock market may reach lower levels than the current ones: “Inflation seems not to have peaked and, although it may offer signs of greater stabilization, it continues to be far from the ECB’s objectives. The European body has already confirmed that will raise rates in the two remaining meetings, the amount will depend on the next data. The European economy is suffering a progressive economic slowdown conditioned by the rise in interest rates, high inflation and energy dependence,” they point out.

For Capitalia, Despite the current situation, the market continues to be overly optimistic about the outlook for the macroeconomic scenario. Expectations that, in his opinion, “will continue to be more disappointed: more inflation, weaker growth and corporate profits, stricter financial conditions, higher risk premiums, etc”.

CMC Markets He also believes that inflation is “far from being controlled”, so more rate hikes can be expected and that “it will cause recessions in countries”. Thus, they add that “consumption will be cut, which will cause layoffs and many companies will have serious problems, especially those in debt and those that do not have competitive advantages.”

Since iBroker they see different reasons that can influence them to reach lower levels. “Although it is possible that the main indices have already discounted that the interest rates in Europe will rise and will remain high for a while, there are still factors that could push equities down further”. Among these, they highlight “the level of recession that the energy crisis will produce and especially the gas shortage”, as well as that, although so far the companies have managed to maintain their results, “it is very possible that there will be a downward revision, firstly, by the companies themselves in their guides, and secondly, by the analysts themselves who they must apply higher discount rates to value”, they conclude.

Jaime Medem, investment director at Mirabaud & Cie Spain, also sees inflation as one of the main problems that will affect the stock market down. “Valuations in Europe are attractive if we compare ratios against their historical levels. However, we see elements against it such as a possible downward revision in estimates and a derating in valuations due to greater uncertainties.”

the most positive

Victor Alvargonzález, from Nextex Finance, He is part of the group of experts who believe that the cloud can be cleared. “The misfortunes plaguing the Eurozone are already known to all investors and analysts, so they are largely priced in,” he notes. Second, he explains that he believes “inflation will begin to decline in the United States at some point in the next quarter and that who moves the stock market is Wall Street and Wall Street is moved by inflation. If inflation begins to fall in the United States, the US stock market will rebound and the rest of the world’s stock markets will follow.”

Xavi Brun, from Trea AM, also believes that the stock market could rebound in the coming months. “Despite inflation, companies are doing well, so good companies will continue to do well. This, together with an expectation of greater control over inflation, will make markets give less probability to the scenario of a strong recession.”

The positive reasons that Raquel Blázquez, head of private banking investment management at Ibercaja, which could support this better performance at the end of the year are, on the one hand, the lower pressure of raw materials in general, and energy in particular. As well as “the more robust macro environment than in other recessions; the possibility of tax incentives for families and companies to mitigate the rise in energy costs; the attractive valuation of PER 11 times for 2022 and the high exposure of European indices to the financial sectorat a time when entities are favored by the current context”.

For Antonio Aspas, partner of Buy & Hold, “The European stock market will rise in the last quarter of the year, since, firstly, we expect inflation to begin to stabilize and therefore the end of the rate hike is beginning to be seen. And, secondly, because The current level of investor pessimism is extraordinarily high, showing one of the highest levels of bears in the last 40 years, so we believe that much of the bad news is discounted in current prices. Jacobo Blanquer, CEO of Tressisalso joins the club of the most optimistic and considers that, despite the fact that downward changes are still awaited, by the end of the year they will be able to rebound from current levels.

Without changes

Despite fears of a recession on the horizon, Joan Sans, portfolio manager of MoraBanc, considers that “European stock markets should not suffer excessively from current levels, but we do not expect a prompt recovery in European markets either”. In this sense, the expert expresses that “European stock markets are trading at PER 11 and it would be expected that the shares of the Old Continent would recover in price to valuation levels close to their historical average. However, we are not in a normal or stable environment of market”.

From Unicaja they are also confident that stock markets will remain in similar environments by the end of the year: “In this rate environment, consumers will be more pressured. expectations of business results remain too high and they should go down. For this reason, we maintain, in general, a cautious position.”

Nicholas Lopez Medina, director of equity research at Singular Bank, adds in this regard that “the macroeconomic environment is going to be negative in the fourth quarter, with a growing risk of a downward revision of profits. We see a change in the language of the central banks as unlikely at least until the beginning of 2023, in that can be assessed if the inflation trend is positive. In this context, we believe that rebound attempts such as this summer’s will not have a long journey”. Furthermore, on the other hand, he indicates: “The valuations are low and already discounting a scenario of stagnation or mild recession as well as some downward adjustment in profits. The stock market will be resilient to the bad economic data and we do not expect additional deep falls sustained over time.”

Since Sabadell they also believe that the levels will remain within a lateral range “until the market is calm with the central banks and the inflation data begins to give a breather”.

Source: www.eleconomista.es

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J. A. Allen

Author, blogger, freelance writer. Hater of spiders. Drinker of wine. Mother of hellions.

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