European stocks recommendation from UBS: More attractive than the USA
UBS strategists stated that European stocks are more attractive than US stocks due to expectations that monetary easing in Europe will start before the US.
UBS strategists prefer stocks in Europe, where economic growth is expected to recover due to potential interest rate cuts, over stocks in the United States.
The team, including UBS Chief Strategist Bhanu Baweja, said “very few” of the bank’s Asian clients had an overweight position in European stocks.
In the note, which evaluated many asset classes globally, the expectation that stronger economic growth would support stock valuations was expressed, even if margin pressure limited earnings.
According to strategists’ evaluations, Stoxx 600 may rise up to 565 points by the end of the year in a soft landing scenario. This represents an 8 percent premium over current levels.
Political uncertainty around the US elections could also push risk premia higher again, giving the Stoxx 600 a fair valuation at 510 points, according to UBS strategists.
In a separate note, strategists led by Sutanya Chedda said they see opportunities in both European value and growth stocks.
Europe is preparing for interest rate cuts in June
While the European Central Bank (ECB) is preparing to cut interest rates in June, ECB Chief Economist Philip Lane stated that concerns that starting reductions before the USA may cause problems are unfounded.
Speaking to the Financial Times, Lane said: “Leaving aside any major surprises, there is now sufficient reason to cut top interest rates.” Lane stated that the faster inflation decline in the Euro Zone compared to the USA was due to the increase in inflation due to the energy shock that emerged with Russia’s invasion of Ukraine, and said: “Dealing with the war and energy problems was costly. However, starting to reduce interest rates as a first step was an indication that monetary policy could reduce inflation with the right timing. “I think we were successful in this context,” he said.
Some dovish ECB members may not be satisfied with the June interest rate cut. In his statement on Monday, French Central Bank President Francois Villeroy said that the July interest rate cut option should not be excluded.