Macro Research European Equities 2022 Outlook – Attractiv | FSMOne SG - Research Highlights

Macro Research

European Equities 2022 Outlook – Attractive Pick among Developed Markets

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• Europe’s growth outlook remains strong despite a 5th wave of COVID-19. Cases have peaked, but economic data shows signs of turning, while pandemic data suggests Omicron may not be as severe as Delta.

• ECB is likely to keep monetary policy relatively dovish. This is mainly due to relatively benign inflation, and we think ECB has more time to tighten policy compared to the US.

• As a result, earnings should remain supported. We expect robust earnings growth in 2022 and 2023 due to a combination of domestic and global economic recovery. We also look at some sectors that could outperform the rest of the index.

• Valuations remain appealing, with the Euro Stoxx 600’s P/E ratio slightly above its historical average but nothing too steep. In fact, valuations have dropped steadily since last year due to improving earnings. More notably, valuations are very appealing compared to the S&P 500, which now sees steep valuations.

• With the growth and policy outlook remaining bright, we think that the Euro Stoxx 600 is well-placed for the economic recovery as it contains both Cyclical and Growth elements. We see an upside potential of 14% over the next 2 years and remain positive on European equities. Therefore, we maintain our 3.0 Stars “Attractive” rating on European equities.

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