June 5 (Reuters) – European equities may fall by 10% over the summer season as slowing financial progress and deteriorating liquidity dampens earnings, Morgan Stanley mentioned on Monday.
The brokerage lower its sector score on financials to “impartial,” whereas upgrading prescription drugs one notch to “chubby,” amid a shift instead of defensive shares over cyclicals.
Morgan Stanley mentioned that European corporations have held up higher than these from the remainder of the world in 2023 and narrowed the estimated fall in revenue this yr to six% from 10% earlier.
“We nonetheless anticipate a downgrade cycle commencing in H2 2023 as a result of decrease margins and weaker financial progress (which we expect is simply starting),” lead fairness analyst Graham Secker mentioned.
Nonetheless, this downgrade cycle is beginning later than anticipated, which limits a possible rebound in 2024, Secker added.
The pan-European STOXX 600 index (.STOXX) has been resilient, with a greater than 8.8% improve this yr after shedding practically 13% in 2022.
The index has come below stress not too long ago after the European Central Financial institution remained steadfast in its dedication to taming value pressures, lagging behind the S&P 500 index (.SPX) that’s up practically 12% year-to-date.
Secker mentioned that financials have been driving Europe’s “superior” earnings efficiency this yr however flagged restricted scope for additional progress.
Because it has been greater than a yr into the Fed’s aggressive mountaineering cycle, the headwinds to revenue from the financial coverage are doubtless coming nearer, the brokerage mentioned, noting that traditionally, tighter credit score situations manifested over the long run.
Reporting by Aniruddha Ghosh in Bengaluru; Enhancing by Savio D’Souza and Dhanya Ann Thoppil
Our Requirements: The Thomson Reuters Belief Ideas.
