While European stocks have consistently underperformed US peers since the global financial crisis, now “the scales are tipping slightly in favour of Europe”, according to Goldman’s strategists. One big difference is fiscal policy, with spending set to expand further in Europe — including via a green stimulus package — in contrast to the US, where fiscal support is expected to drop off.
Meanwhile, the “earnings gap is closing” with forward earnings per share estimates stronger in the last year for Europe than the US, Bell wrote. The strategists recommend European banks and energy stocks, and single out healthcare as their preferred “cheap” growth area.
Goldman is not alone in seeing Europe as a potential winner in the post-pandemic return to normalcy. “European equities can wobble around the first Fed hike, but usually end up recovering,” Citigroup strategists led by Beata Manthey wrote in a note on Wednesday.
“Higher yields could help traditional value trades such as UK equities and pan-European financials,” they said.
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