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BETTER GROWTH WON’T HELP EUROPEAN STOCKS, BOFA SAYS
BofA European equities analysts are normally pretty bearish, and true to form, they’re out on Friday arguing that even though the European economy is picking up, they don’t see this doing much for stocks in the region.
On the plus side, they say: “The impact of German fiscal stimulus is finally set to materialize, with our economists expecting Euro area domestic demand growth to reaccelerate through year-end. Meanwhile, inflation is easing and ECB rhetoric has become noticeably less hawkish, creating a mini-goldilocks moment,” they write.
So shouldn’t this be good news for the STOXX 600? Well no, BofA says.
They argue a lot of the good news is already in the price: “the European market remains priced for perfection — with margin expectations at record highs and risk premia at a 20-year low.”
And they don’t think the situation warrants this since “AI models increasingly risk becoming commoditised, which could call into question AI capex expectations and threaten a reversal of the AI-led momentum.”
Even though Europe has fewer actual chip makers, the AI boom has helped its stock market as well as those in Asia. Morgan Stanley reckons 70% of year-to-date MSCI Europe performance has been driven by the AI capex complex.
(Alun John)
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