European Stocks Are Close to Banishing the Nightmares of 2018

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(Bloomberg) — The world-beating rally in European equities is so strong that it’s close to wiping out the pain of last year’s sell-off.

The Stoxx Europe 600 Index is less than a percentage point away from fully recovering the losses that started at the end of September. Buoyed by softer monetary policy and optimism that the U.S. and China can thrash out a trade deal, European stocks have surged 17 percent from their December lows.

The latest Bank of America Merrill Lynch fund manager survey published on Tuesday showed that investors see the short on European shares as the world’s most crowded cross-asset trade. Redemptions from the region’s equity funds have continued almost non-stop for a year now and the stocks are trading near half-a-century lows relative to global peers.

Despite that, some investors are buying in and the likes of Morgan Stanley and BofAML say European equities can outperform in the coming months. Emmanuel Cau, a strategist at Barclays Bank Plc, said in a note on Tuesday that the sentiment toward the region is too negative and economic data has been improving.

The region’s shares were battered by the global equity retreat that caught many off-guard at the end of 2018, losing as much as $2 trillion in value as traders panicked over higher interest rates and growth concerns. On top of the global worries, Europe underperformed last year because of political turmoil in Italy and the U.K., as well as slower profit growth.

To contact the reporter on this story: Ksenia Galouchko in London at kgalouchko1@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Paul Jarvis, John Viljoen

©2019 Bloomberg L.P.

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