Five reasons why the European equity market will catch up with the US market – Natixis

Since the COVID-19 crisis, the European equity market recovery has lagged significantly behind that of the US market. Only an incipient catch-up has taken place, but analysts at Natixis believe that there will be a much greater catch-up in the European market, for five reasons.

See – Four key reasons why eurozone equities will outperform their US peers in the remainder of 2021 – CE 

Anticipating the catchup of the European equity market

“Growth will pick up in Europe thanks to the progress of vaccination, which is nevertheless lagging behind the United States. In 2022, euro-zone growth is likely to be similar to US growth.”

“At an annual rate, the European recovery plan is larger than the US recovery plan. The recovery plan (investments that are likely to contribute to long-term growth: infrastructure, education, healthcare, research, energy transition, etc.) is EUR750 billion over two years in Europe, and USD2.3 trillion over eight years in the US: contrary to what we often hear, the European recovery plan is larger than Joe Biden's plan at an annual rate. We can therefore expect an upturn in productivity in Europe relative to the US.”

“The marked recovery in global trade will benefit the eurozone. Thanks to the economic recovery in China and the United States, global trade growth is strong. This is benefiting the eurozone more than the United States, given the higher weight of eurozone exports”

“Corporate taxation will become more favourable in the eurozone than in the United States, given the planned tax rate of 39% on capital income in the United States and the planned hike in the tax rate on US corporate earnings to 28%. This is not a normative judgment, but an observation that this will benefit European companies.”

“The weight of banking and financial stocks in the European market is high. The upswing in banking and financial stocks in the eurozone, which can be linked to the improvement in the economy, the fall in default rates and the slight steepening of the yield curve is therefore positive for the European market.”