Investors see French and German stocks as Europe's 'weak links' - JPM
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INVESTORS SEE FRENCH AND GERMAN STOCKS AS EUROPE'S 'WEAK LINKS' - JPM
Investors are increasingly asking JP Morgan how to have exposure to Europe, but are avoiding core countries France and Germany in favour of 'periphery' markets such as Spain and Italy, a novel development according to the U.S. investment bank.
"This is a complete U-turn to past decade, where Core over Periphery was the dominant positioning for most against the backdrop of Euro crisis," write the JPM strategists in a note.
So what's behind the preference?
According to JPM, periphery is looking cheap versus core on a P/E basis. PMIs out of those countries also appear better, they say.
Projected GDP growth rates also look attractive in Spain, while Germany and France are lacklustre.
"In terms of fiscal room, Italy and Spain have scope to support their growth. France has very limited room, and Germany could do more if they amend their fiscal brake."
Periphery has held up better than core over the past four years. JPM says that since the October 2020 low, Italy and Spain are up 80%, versus a less than 40% rise for Germany and France.
Interestingly, JPM says that the current bullish view on Periphery vs Core is implicitly a call on banks, because the two metrics continue to show a very clear strong positive correlation.
"Banks have performed strongly in the past 3 years, and still appear cheap, but their profits are likely peaking as ECB is set to undertake a series of rate cuts," they write.
If banks stall, periphery would look less attractive.
(Lucy Raitano)
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