Europe Inc set to clear lower earnings bar; wait-and-see on China stimulus
Analysts cut European Q3 earnings estimates at fastest pace in seven months
Investors cautiously optimistic on China stimulus despite lack of details
Cheap valuations, light positioning offer opportunities
Updates to include LVMH results in paragraph 6 and ASML in paragraph 7
By Samuel Indyk and Medha Singh
LONDON, Oct 16 (Reuters) -Analysts have downgraded estimates for European corporate earnings at the fastest pace in seven months this week, setting a lower bar for beats, while more optimism over the global outlook might spare shares from severe punishment for misses.
Third-quarter earnings are expected on average to have increased 3.7% from a year ago, according to data from LSEG I/B/E/S, driven by growth in materials, financials, and utilities.
However, the ratio of downgrades to upgrades of analysts' European earnings estimates has reached its highest since February as the region's economy struggles to generate meaningful growth.
"Expectations have come down quite a bit, particularly with the economy weakening," said Frederique Carrier, head of investment strategy at RBC Wealth Management.
"If numbers are better than expected, I would expect the market to react quite positively," Carrier said.
As third-quarter earnings season kicks into high gear, this theory is facing a tough test. Shares in French luxury group LVMH LVMH.PA dropped on Wednesday by the most in a year, down 6%, after reporting weak quarterly sales.
And late on Tuesday, Dutch tech company ASML's ASML.AS results showed earnings beat expectations, but a downbeat outlook triggered the largest one-day sell-off in its shares since 1998.
In the second quarter, earnings misses were punished more than they had been historically. However, some analysts believe this quarter might be different, as investors turn more optimistic about the global growth outlook.
"Investors are happy to look through the China weakness," said Georges Debbas, head of European equity & derivatives strategy at BNP Paribas.
China is a critical market for many European sectors and Beijing's recent announcements of large-scale stimulus measures, although light on details, have offered some hope that the world's second-largest economy can again drive global growth.
Finance Minister Lan Foan pledged over the weekend that Beijing would do more to stimulate economic growth, which data due on Friday is expected to confirm remained subdued in the third quarter.
The health of China's economy matters more for European companies that depend more on exports than their U.S. rivals, which generate most of their revenue in their vast home market.
But many investors say they remain cautious until they see further details about China's stimulus plans, including the size of the proposed package.
"There will be hope that the stimulus package can be positive for companies that have suffered from weak consumption in China," said Josephine Cetti, chief strategist at Nordea.
"(But) I don't think companies will change estimates based on what we've seen, because we haven't seen anything concrete yet."
RELATIVELY CHEAP
Among consumer-facing industries hit especially hard by weakness in China are luxury retailers, such as LVMH and Kering PRTP.PA, and automakers.
Investors have been shunning Europe's auto sector .SXAP because of softening volume growth and heightened competition from China, particularly in electric vehicles, despite valuations close to record lows compared to the benchmark STOXX 600 index.
"The auto sector for us has been uninvestable for years," said Eddie Kennedy, head of bespoke discretionary fund management at Marlborough, citing high capex spending, low margins and increased competition.
More broadly, though, cheap valuations and light positioning offer opportunities for investors.
While the STOXX 600 .STOXX is within 1.5% of record highs, European companies trade close to a record discount against their U.S. counterparts at about 37%, based on the price-to-earnings ratio.
"Valuations are relatively attractive," said Ben Ritchie, head of developed markets equities at abrdn.
"I don't think we'll see anything in the third quarter that will change that picture."
Investor positioning in Europe is also broadly neutral according to most metrics. Citi strategists highlight that investors are slightly net short Eurostoxx futures, one of just three indexes from a number that they track that has a net short position against the backdrop of mostly bullish equity positioning.
"It's not like S&P 500, which is trading at extremely high valuations, extremely high positioning, extremely high overcrowdedness that if a big AI scare happens, you could see a large correction," BNP Paribas's Debbas said about the STOXX 600.
"In Europe, I don't think that's going to be the case."
STOXX 600 net earnings revisions https://reut.rs/3BWClvS
European stocks trade close to record discount vs. U.S. https://reut.rs/4h4iBXw
Reporting by Samuel Indyk and Medha Singh in London; Editing by Amanda Cooper and Tomasz Janowski
متعلقہ اثاثے
تازہ ترين خبريں
دستبرداری: XM Group کے ادارے ہماری آن لائن تجارت کی سہولت تک صرف عملدرآمد کی خدمت اور رسائی مہیا کرتے ہیں، کسی شخص کو ویب سائٹ پر یا اس کے ذریعے دستیاب کانٹینٹ کو دیکھنے اور/یا استعمال کرنے کی اجازت دیتا ہے، اس پر تبدیل یا توسیع کا ارادہ نہیں ہے ، اور نہ ہی یہ تبدیل ہوتا ہے یا اس پر وسعت کریں۔ اس طرح کی رسائی اور استعمال ہمیشہ مشروط ہوتا ہے: (i) شرائط و ضوابط؛ (ii) خطرہ انتباہات؛ اور (iii) مکمل دستبرداری۔ لہذا اس طرح کے مواد کو عام معلومات سے زیادہ کے طور پر فراہم کیا جاتا ہے۔ خاص طور پر، براہ کرم آگاہ رہیں کہ ہماری آن لائن تجارت کی سہولت کے مندرجات نہ تو کوئی درخواست ہے، اور نہ ہی فنانشل مارکیٹ میں کوئی لین دین داخل کرنے کی پیش کش ہے۔ کسی بھی فنانشل مارکیٹ میں تجارت میں آپ کے سرمائے کے لئے ایک خاص سطح کا خطرہ ہوتا ہے۔
ہماری آن لائن تجارتی سہولت پر شائع ہونے والے تمام مٹیریل کا مقصد صرف تعلیمی/معلوماتی مقاصد کے لئے ہے، اور اس میں شامل نہیں ہے — اور نہ ہی اسے فنانشل، سرمایہ کاری ٹیکس یا تجارتی مشورے اور سفارشات؛ یا ہماری تجارتی قیمتوں کا ریکارڈ؛ یا کسی بھی فنانشل انسٹرومنٹ میں لین دین کی پیشکش؛ یا اسکے لئے مانگ؛ یا غیر متنازعہ مالی تشہیرات پر مشتمل سمجھا جانا چاہئے۔
کوئی تھرڈ پارٹی کانٹینٹ، نیز XM کے ذریعہ تیار کردہ کانٹینٹ، جیسے: راۓ، خبریں، تحقیق، تجزیہ، قیمتیں اور دیگر معلومات یا اس ویب سائٹ پر مشتمل تھرڈ پارٹی کے سائٹس کے لنکس کو "جیسے ہے" کی بنیاد پر فراہم کیا جاتا ہے، عام مارکیٹ کی تفسیر کے طور پر، اور سرمایہ کاری کے مشورے کو تشکیل نہ دیں۔ اس حد تک کہ کسی بھی کانٹینٹ کو سرمایہ کاری کی تحقیقات کے طور پر سمجھا جاتا ہے، آپ کو نوٹ کرنا اور قبول کرنا ہوگا کہ یہ کانٹینٹ سرمایہ کاری کی تحقیق کی آزادی کو فروغ دینے کے لئے ڈیزائن کردہ قانونی تقاضوں کے مطابق نہیں ہے اور تیار نہیں کیا گیا ہے، اسی طرح، اس پر غور کیا جائے گا بطور متعلقہ قوانین اور ضوابط کے تحت مارکیٹنگ مواصلات۔ براہ کرم یقینی بنائیں کہ آپ غیر آزاد سرمایہ کاری سے متعلق ہماری اطلاع کو پڑھ اور سمجھ چکے ہیں۔ مذکورہ بالا معلومات کے بارے میں تحقیق اور رسک وارننگ ، جس تک رسائی یہاں حاصل کی جا سکتی ہے۔
