Original Source: www.zonebourse.com
This article delves into the current state of the European markets, particularly focusing on the SBF 120 index, amidst rising political uncertainty and falling earnings forecasts. It contrasts the performance of French stocks with that of the MSCI Europe index, highlighting investors’ hesitance and how such underexposure may offer unique opportunities for savvy investors. By exploring the nuances of market valuation and the potential factors for recovery, the piece encourages reflection on the complexities of investing within this challenging landscape.
In a tumultuous landscape, European markets find themselves languishing, weighed down by both political uncertainty and external pressures. The SBF 120 index trades at a muted price-to-earnings ratio of less than 13, hovering close to its historical lows. Guillaume Laconi, a market manager, reveals that European stocks carry a valuation discount of 25% compared to Wall Street, twice the historical average.
The slashing of earnings forecasts for 2024 by 11.5% for the SBF 120, particularly following the dissolution of the National Assembly, starkly contrasts with the more moderate reductions of 3% to 4% within the MSCI Europe index. A quarter of this earnings cut can be attributed to political uncertainty, with another quarter stemming from rising tax rates. The lion’s share of this downtrodden sentiment echoes through a sluggish economy and the dominance of the luxury sector in the French market.
Yet, within this chaos, a silver lining awaits. Investors’ underexposure to French equities presents a tantalising opportunity for contrarian bets. Laconi emphasises that French stocks should not merely be viewed as proxies for their domestic economic performance, given their extensive international exposure. The question arises, could these well-trodden concerns already be factored into valuations, paving the way for a potential turnaround?
For hope to blossom once again in French equities, Laconi suggests looking for signs of reduced risk perception. Greater clarity surrounding future trade policies under a potential Trump administration, combined with reviving activity in China, could spark a much-needed renaissance. Wrapping up, Laconi muses, “What could possibly go wrong in Europe?” inviting a reconsideration of the bleak current outlook, as opportunities linger amid uncertainty.
