European equity markets are basking in a glow that even greater uncertainty unleashed by turmoil in the banking sector appears not to be able to dim.
A broad measure of European shares, the STOXX 600 index , is trading at 14-month highs, taking this year’s gains to almost 10%. That compares with an 8% rally in the U.S. S&P 500 index. James Rutland, a European equities fund manager at Invesco, noted that consistent outflows from European shares last year, when the energy crisis dealt the region a fresh blow, had left valuations at very cheap levels.
Graham Secker, chief European equity strategist at Morgan Stanley, said European equities had been a “structural underperformer” between the end of the global financial crisis in 2008 to the outbreak of the COVID crisis in 2020, with a rebound starting late last year. Dollar weakness, signs that inflation is abating and company earnings boosted by China’s economy reopening were also viewed more generally as positive signs.
“We assume Q1 earnings will be okay because growth has been fairly resilient, so I don’t see earnings being a shocker,” said Emmanuel Cau, head of European equity strategy at Barclays. “If earnings are okay, we might see the market continue for the time being.”