about 4 years ago • 2 mins
European shares have been the tortoise to America’s hare for the past decade. And a new report from Goldman Sachs sees few signs that slow and steady is going to win the race any time soon… 🐢
Ever since stock markets bottomed following the financial crisis in March 2009, Europe’s lagged behind the US. Well behind.
Surely this situation can’t last forever, right? Well, sadly, a report from investment bank Goldman Sachs on Tuesday offered little encouragement for European equity bulls. Europe’s stocks probably won’t beat their Yankee cousins in 2020, Goldman wrote – “but it’s a close call, closer than in recent years.” The two major drivers of US equity dominance – greater profit growth and political stability relative to Europe – are waning. And that’s only going to become more noticeable as the US approaches a hard-fought US presidential election in November and Britain works out its future relationship with the European Union.
According to Goldman’s forecasts, investing in European stocks should return about 5% in 2020 (9% if you include dividends), and profits at European companies should climb by about 3%. By comparison, 2019 saw a 26% rally in eurozone shares and an anemic profit growth of just 1%.
Here’s Goldman again: “In previous periods when a sharp rise in valuation drove equities, the subsequent year’s return was lower, but still positive.”
With predictions like these you may wonder why you would bother buying European shares at all this year. The investment bank pointed to one good reason: the healthy yield compared to German bonds.
The bank also highlights that European governments might start spending (a little) more this year as they become less worried about budget deficits. That would boost the economy and – eventually – company earnings.
If that does happen, Goldman says, expect to see the biggest benefits flowing to the eurozone’s smallest companies and banks. What’s more, renewable energy stocks should be winners if governments up their spending on infrastructure and switch to lower-carbon energy sources 🌻
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