Believe it or not, Europe is finally outperforming Wall Street

Europe

By Namitha Jagadeesh

In a switch from the longer-term trend, European equities are beating their US peers in the latest leg of the rebound.

Boosted by a strong outperformance of cyclical shares on bets of a swift economic recovery and after a string of stimulus plans, the Stoxx Europe 600 Index has rallied 12 per cent since mid-May, versus 9 per cent for the S&P 500 Index.

The difference is even starker when looking at Germany’s DAX Index, with its heavy weighting of carmakers and industrial shares. The benchmark, which includes dividends, has surged 19 per cent, more than twice the gain for the US gauge. Other euro-area markets have also been strong, with France’s CAC 40 up 17 per cent and Italy’s FTSE MIB up 16 per cent.

While the rebound in equities paused in early May on bleak economic and corporate updates as well as rekindled US-China tensions, the mood has turned buoyant in recent weeks as European countries started to reopen economies. Investors are also widely anticipating further measures from the European Central Bank.

Bloomberg

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“Europe is due a catch-up,” Barclays Plc strategists led by Emmanuel Cau wrote this week. The rotation into value and cyclical laggards, and into Europe, should be supported by rising PMIs, stabilizing bond yields and a weaker dollar, they said.

Autos, insurers and travel-and-leisure shares, which had lagged in the early part of the rebound in Europe, have surged 20 per cent or more since May 14. Banks and miners too have outperformed.

Some shares that were hard-hit in the rout which began in late February are also rebounding strongly: European shopping center landlord Hammerson Plc, which slumped to a record low amid the impact from the pandemic, has surged 175 per cent since May 14, while tourism company TUI AG has jumped 89 per cent.

That’s boosted the relative performance of Europe, which has lagged the US for the past four years despite repeated bullish calls from strategists. European equities are still trailing so far in 2020, however, with the Stoxx 600 down 12 per cent year-to-date, versus a loss of 3.3 per cent for the S&P 500 over the period.

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