European equities: Fat & flat’ with a resurgence of divergence in 2016 – Goldman Sachs

FXStreet (Delhi) – Research Team at Goldman Sachs, lists down the European equities market and themes for 2016.

Key Quotes

Fat & Flat: The bull market since 2010 has been driven almost entirely by multiple expansion. We think valuations are now stretched and the European market trades at a 12-month forward P/E of 16.8x ex financials, similar to the US (at 17.4x) and we expect no further increase in P/E multiples from here. Profit growth is in Europe likely to be 8% in 2016 and 10% in 2017, supported by a weak euro and better domestic and global GDP growth. Our 12-month (end 2016) index targets are 400 for the SXXP and 3650 for the SX5E. For the SXXP this implies a return of 7.5% in euro and negligible returns in USD.

The need to differentiate: This year has been dominated by the underperformers (EM and commodities) rather than the outperformers. These themes remain in play but sustained underperformance and some moderation in fundamentals (softening imbalances in some EM and cost adjustments in oil) mean that greater differentiation within sectors and the themes is now required.

Five themes for 2016: We focus on differentiation within: 1) Commodities (we prefer oil to
mining), 2) Industrials (we prefer opex to capex), 3) Consumer (we prefer cyclicals to staples), 4) Income (we prefer income with growth to staples), and 5) EM (we prefer Consumers to Industrials).

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these securities. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Forex involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

RELATED TOPICS