LONDON Jan 12 U.S. investors may finally return
as buyers of European stocks following a marked improvement in
the outlook for corporate earnings in the region, which are
seeing the most upgrades from analysts in nearly seven years,
according to UBS.
Commodity prices, a lack of inflation and exposure to
emerging markets were headwinds for European companies in recent
years, but are turning into reasons to be optimistic on Europe,
strategists at the Swiss bank said in a note to clients.
The improving backdrop saw U.S. investors turn net buyers of
European stocks via exchange traded funds (ETFs) in December,
breaking a nine-month-long streak, the bank said, based on its
Prospects of better growth and profits in other markets,
particularly in the United States, and a sluggish economy and
political uncertainty in Europe have until now dimmed the appeal
of the region's equities, which were among the worst performers
among developed market peers last year.
Europe's STOXX 600 fell 1.2 percent in 2016
compared with a 9 percent rise for the S&P 500.
Since December, U.S. investors have pumped $3.6 billion into
European equities via ETFs. Outflows in the nine months prior to
that stood at $35.8 billion.
The brighter earnings outlook in Europe is underpinned by
better demand rather than cost cuts, an important sign that the
upgrades could continue.
"Earnings upgrades are finally being driven by revenue
upgrades - the best in 17 months," UBS's equity strategy team
led by Nick Nelson wrote.
Robust euro zone PMI data showed that businesses grew at
their fastest pace in more than five years in December, while
figures for euro zone manufacturing activity were also solid.
Mining companies, auto makers and banks were the sectors
seeing the biggest analyst upgrades, UBS said.
(Reporting by Kit Rees)