Goldman to JPMorgan slash European stock targets as risks mount

Bloomberg

Strategists are cutting their targets for European equity markets this year, with the region’s benchmark now seen ending 2022 flat as risks from the war in Ukraine, soaring commodity prices and central bank tightening pile up.
The Stoxx Europe 600 Index will be little changed for the year by the end of December, at 488 index points, according to the average of 16 forecasts in Bloomberg’s monthly survey. That implies about 12% upside from Monday’s close, after a selloff that wiped 2.4 trillion euros in value from the region’s benchmark this year.
Strategists cut their targets by about 3.7% on average from the last survey, with some slashing forecasts by as much as 12%, in a month that included Russia’s invasion of Ukraine, an oil price spike and a surprisingly hawkish tone from the European Central Bank (ECB).
“We cut our year-end target last week to reflect our lowered EPS growth estimates, and applied a lower multiple due to the higher uncertainty,” Barclays Plc strategist Emmanuel Cau said in written comments. Headlines, sentiment and technicals will continue to drive equities, despite a material slowdown in earnings and economic growth now being priced in, he said. Cau’s new year-end target of 465 index points for the Stoxx 600 — an 11% cut from his prior view — implies a drop of about 5% this year.
European equities, which already had a rough start to 2022 amid rising inflation and a hawkish pivot from central banks, have been among the hardest hit by the war, given their exposure to Eastern Europe and Russia. Surging oil and gas prices as the continent tries to cut its dependence on Russian resources have also raised fears of a recession in the region.
Reflecting these macro-economic risks, UBS AG strategists led by Nick Nelson — who were particularly bullish on earnings growth earlier this year — almost halved their 2022 EPS growth forecast to 8% from 15%. They now see the Stoxx 600 ending 2022 little changed.
And investors are also taking action. Bank of America Corp.’s March global fund manager survey showed that allocations to the euro-area plummeted 48 percentage points to a net 18% underweight over the past month — the first time since May 2020 that investors have been underweight on the region.
Following this year’s 11% drop in the Stoxx 600, 50% of BofA’s regional survey participants expect European stocks to rebound by at least 5%, while a third of investors see scope for the market to decline further. They see the war in Ukraine as the biggest risk for markets, followed by a global
recession and inflation.