A photo taken on December 29, 2020 shows the skyline of Frankfurt am Main, western Germany, with (RtoL) the Frankfurt Cathedral, the Main Tower with the Helabas head office, and the Commerzbank Tower.
DANIEL ROLAND | AFP | Getty Images
LONDON — Not everyone is bullish on Europe for the remainder of the year.
Peter Toogood, chief investment officer at financial services firm Embark Group, believes European stocks may well keep pace with U.S. stocks in the coming months, but that’s not to say he shares Wall Street’s optimism for the region.
Analysts at Morgan Stanley say Europe is well-placed to outperform all major regions this year for the first time in more than two decades. The investment bank believes U.S. markets are likely to be “choppier” in the months ahead, citing rising inflation, growing pressure on profit margins and a possible slowing of quantitative easing.
Meanwhile, there is a “compelling” case for Europe to be the best-performing region due to attractive valuations, stronger earnings-per-share growth and the launch of the EU’s massive post-Covid recovery fund.
When asked whether he agreed with the view that European equities could soon decouple from the U.S., Toogood told CNBC’s “Squawk Box Europe” on Friday: “No I don’t … I’m not buying it this time.”
“I’ll happily acknowledge that we’ll keep up … There’s going to be a Covid bounce, notionally, they are getting their act together, there is the recovery coming but it is going to be very late. We are going to be into the autumn and winter soon where I’m sorry (but) Covid is not going to go away,” he continued.
“So, no, I’m not buying it. I think they have come too late to the party in terms of the vaccines; very sadly, and therefore the recovery is delayed,” Toogood said.
To date, around 33% of EU citizens have received at least one dose of a Covid vaccine, according to statistics compiled by Our World in Data. By contrast, nearly 48% of the U.S. population has received at least one vaccine dose.
‘What are you buying when you buy in Europe?’
The International Monetary Fund said last month that Europe’s economic recovery from the coronavirus pandemic was on track to return to pre-crisis levels in 2022. The forecast was conditional on the region’s Covid-19 vaccine campaign, and as uncertainty persists over how the health crisis will evolve.
“I think the second problem remains: What are you buying when you buy Europe?” Toogood said, noting possible exceptions in the region among some “very strong” consumer brands.
“The banking sector? No, not really. I don’t see interest rates going anywhere in Europe for a very long time and they’ve been withdrawing globally, if anything. Most of the Europeans, in terms of banks and activities, are heading inward.”
“There’s a massive discount gap but that’s because a lot of the stocks in the U.S. are priced more highly because they simply grow better. There are no FAANGs in Europe I’m afraid,” he continued, referring to the acronym for Facebook, Amazon, Apple, Netflix and Google-parent Alphabet.
“So, there is trouble for the indices in Europe and the U.K. … That’s the reality. We haven’t got the disruptors and we don’t have the exciting industries. It’s Asia and America where that action sits,” Toogood said.
— CNBC’s Lucy Handley contributed to this report.