European stocks to hit record highs in 2022: poll

404
3
European stocks to hit record highs in 2022: poll

The German share price index DAX is graphed at the Frankfurt stock exchange in Frankfurt.

A recovery in corporate profits has boosted the prospects of European stocks to hit record highs in 2022, according to a poll of 23 fund managers, strategists and brokers, despite uncertainty about the COVID 19 pandemic.

The poll, conducted over the past two weeks, predicted that France's CAC 40 blue chip indexes and Germany's DAX would hit uncharted highs by mid- 2022, rising about 8% and 6% from Monday's close.

The pan-European STOXX 600 would gain 7% and reach 500 points by July, a rise of 10 points above the lifetime peak on Nov. 17, according to the Nov. 15 -- 30 poll.

European stocks fell by 3.7% on Friday after fears about the impact of the new coronaviruses variant triggered a sell-off, but they are still up about 17% since the start of the year.

This year's performance was boosted by a bounce back in profits from the 2020 recession.

The third-quarter earnings season saw profits jump 58.8%, after surges of 96.4% and 152.6% in the first two quarters, according to the latest Refinitiv I B E S data.

Credit Suisse chief global strategist Philipp Lisibach said that earnings are the key driver for global equity and that is also true for the euro zone.

He predicted high single-digit equity returns in 2022 compared to double-digit returns in 2021.

There has been a resurgence of the pandemic in Europe and the announcements of new social restrictions in Austria and elsewhere have knocked down morale.

In November, euro zone economic sentiment eased amid consumer concerns about a fourth wave of the coronaviruses, while German business morale deteriorated for the fifth consecutive month in November due to supply bottlenecks hitting manufacturing.

There are increasing energy prices, rising infections and delays in delivery in Europe. This creates short-term uncertainty but the situation should be abate going into next year, said Tomas Hildebrandt, senior portfolio manager at Evli Bank in Helsinki.

Most analysts still have a positive outlook going forward, but some predict a grim year ahead for stocks.

As economic growth slows, the STOXX 600 loses 30 points to 430 points at the end of 2022, according to Stephane Ekolo, a strategist at the brokerage Tradition.

Ekolo believes that corporate earnings are going to deteriorate over the next six months, due to continued supply-chain disruptions, reopening boost fading, potential risk of restrictions and rising real rates.

According to the poll respondents, there was a spike in inflation that would cause the European Central Bank to speed up its reduction in monetary policy.

Consumer prices in Germany increased by 6% year on year after a rise of 4.6% in October, increasing pressure on the ECB to react.

European banks, already up 28% this year, would thrive when interest rates expectations go up, as a result of a rise in interest rates.

The French presidential election in April offers more uncertainty in 2022, with incumbent Emmanuel Macron likely to face far-right challenger.

A victory for a euroskeptic president would be a risk for European integration, according to Credit Suisse's Lisibach.