Safety First - The Big Picture Q4 Outlook


The European equity story is a battle between poor earnings prospects and a troubled political landscape on the one hand, and on the other, hope that monetary or fiscal support could crystallise a valuation kick up.

For now, the dark side has the upper hand and investors are favouring other regions, ignoring the relative valuation call. Our 360 target for the STOXX index by year-end suggests a mode 6% downside from current levels. Other regions offer better prospects in the equity space and we see no reason yet for an end to the rebalancing out of European equities that we have seen over the past three years.

Earnings downgrade continue unabated around the globe and are undermining prospects. Expectations now stand at just 1% EPS growth for Europe, nearing our long-held target of zero growth. Expectations for next year still stand at around 10% - way too high, in our view, and the downgrade, when it comes, will hurt the market.

Monetary and fiscal easing could change the outlook somewhat but is too distant a scenario for now. The ECB might walk the BoJ path and there may be some fiscal support, but the fact is that potential growth is weak and policy multipliers impaired. Would the ECB buy equities? The BoJ lesson shows this has not helped in Japan. Germany might offer some fiscal easing, but we think this would matter less than global growth and trade war concerns. Not to mention other headwinds such as the risk of a stronger euro (at some point), the return of leverage (already happening), and Brexit (which is currently all over the place). Avoid small caps in particular.

In their latest The Big Picture 4Q Outlook report titled “Safety first”, the bank’s strategists give their views on the European equity markets, including country and sector analyses, key investment calls, stock picks, equity portfolio management tools and more.

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About Societe Generale Cross-Asset Research
Societe Generale Cross-Asset Research is composed of more than 200 Analysts, Strategists, Economists and Quant, combining their expertise into ‘Research-based’ and innovative solutions suited to client’ needs: fundamental studies and expert views, investment ideas and long-term strategies, trade ideas and tactical baskets, thematic and systematic indices, quant solutions. On top of its established UK and Western European base, Societe Generale Cross-Asset Research benefits from a global coverage thanks to its presence in the US and in Asia (Hong Kong, Singapore, Tokyo and Bangalore) and Societe Generale local networks in Eastern Europe.

This editorial contains financial analysis which reflects the opinion of the Cross-Asset Research department of Societe Generale at the date of its publication. It does not necessarily reflect the views of the other departments of Societe Generale nor the official opinion of Societe Generale. This interview is dedicated to institutional and professional investors and is not deemed to be seen and used by retail investors for investment purpose. The viewers shall consult their own financial advisers to make their own appraisal.