European stocks seal fourth straight month of gains


European stocks posted their fourth straight month of gains, as confidence in the region’s economic recovery strengthens and its vaccination program accelerates.

The aggregate measure of MSCI’s shares across Europe has risen nearly 4 percent since the end of April, bringing its year-to-date gains to 12 percent in US dollars. The stock markets in Frankfurt, Paris, Madrid, Milan and London all soared this month.

While the vaccination program in the EU has lagged significantly behind other regions, efforts by major countries to speed up deployment have boosted traders’ confidence. At the same time, economists predict a strong economic recovery this year.

As a sign of the improvement in the outlook, the latest survey of economic sentiment indicators published on Friday by the European Commission showed that confidence in the euro zone in May was “significantly above its long-term average and its pre- pandemic ”.

ESI data “confirmed that the eurozone economy is rebounding quickly from lockdowns as vaccinations ramp up and the summer season approaches,” said Daniela Ordonez, economist at Oxford Economics.

Shares in Spain and Italy – two countries that were hit hard during the peak of the coronavirus crisis – performed particularly well this month. The MSCI indices for Spain and Italy rose about 6 percent in May in dollar terms. Yields were flattered by the strengthening of the euro against the dollar this month.

Investors and economists have an equally optimistic view of the UK, where the rollout of coronavirus vaccines has been faster than in mainland Europe and where the government has lifted many social barriers.

“We continue to believe that UK stocks offer good value overall to global investors,” said Sharon Bell, European strategist at Goldman Sachs. “Since the start of this year we have seen the strongest inflows of foreign investors into UK stocks since at least 2016.”

The UK’s MSCI index gained 3.4 percent in May, a rise that was helped by a strong rally in the pound against the US dollar.

Stocks in the UK and mainland Europe also appear to be cheaper than those on Wall Street, which has made those markets more attractive, investors said.

The MSCI European Equity Index is trading at around 17 times expected earnings over the next year, according to Goldman Sachs. That’s above the median for the past 10 years, but much cheaper than US stocks which are trading at nearly 23 times expected earnings.

Futures price / earnings ratio bar chart showing European markets are trading at cheaper valuations than the United States

Bank of America said in a note last week that it remained “positive on European stocks” even after the strong gains this month. The bank suggested clients take “overweight” positions in stocks that tend to be tied to the performance of the economy, such as banks and luxury goods sellers, as the region’s economic recovery continues. accelerates.

Monday’s trading was moderate, with both the UK and US closed for public holidays.

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