Big Oil and tanks top Europe’s stock markets in 2022, real estate lags

Bloomberg

Beset by war, soaring costs and higher interest rates, 2022 was a year many European companies — and stock market investors — would prefer to forget.
Carefully crafted investment strategies were thrown into disarray, first by Russia’s invasion of Ukraine and the subsequent energy crisis, then by surging borrowing costs that lifted Germany’s 10-year bond yield, Europe’s benchmark, to the highest in over a decade.
Yet, where there are losers, there are winners. The war proved a boon for shares in defense companies, while rising interest rates boosted banks’ lending margins.
As the zero-rate environment dissipated, “one could say we had a purging of speculative investments, and eyes finally looked hard at core fundamentals of the businesses and their future prospects,” said James Rutherford, head of European equities at Federated Hermes Limited.
Stock picking will be crucial over the coming year, Rutherford reckons, predicting “the market will become even more discriminating at the company level.”
European governments moved almost overnight to beef up military capacity after Russian troops marched into Ukraine. The result has been a 130% surge in German defense contractor Rheinmetall AG, this year’s top performing European stock. Other European defense names such as Thales SA, Dassault Aviation SA and Saab gained between 60% and 80%.
A boom in so-called old economy sectors such as oil and mining made energy the best performing Stoxx 600 subindex with a 30% gain. An energy crisis caused by a fall in Russian supply boosted oil prices in the first half of the year, and many of Europe’s oil majors reported bumper profits and implemented buybacks. Analysts still project returns of around 20% next year for heavyweights Shell Plc and BP Plc, though increasing odds of a global recession could weigh on oil prices.
European banks had a strong end of the year, managing to gain 19% in the fourth quarter and almost reversing all their losses for 2022. Strong profits helped banks build capital which they can return to investors — some such as Banco Santander SA and UBS group announced share buybacks.
And the rally could extend into 2023. Half of European fund managers in a Bank of America survey said they see banking stocks as an investment haven where they can
position for higher rates.
There were bumper returns for Europe’s biggest pharmaceutical firms — AstraZeneca Plc, with its extensive cancer drug portfolio, gained over 30% for the year, while Denmark’s Novo Nordisk A/S rose 25%, as demand for its obesity drug Wegovy surpassed
supply.