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Europe

Europe: Scope for a Rebound

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Germany, France and Spain are responsible for 3/4 of the region’s losses this year. While by sector Cyclicals – Financials, Consumer Discretionary, Industrials and Materials have weighed most heavily.

 

This year, Eurozone equities have been hit by a double whammy. Key international sectors such as Consumer Discretionary and Materials have been hit by trade tensions and Chinese growth concerns, while the main domestic sectors have been hampered by worries over the domestic cycle as well as political risks such as Brexit and Italy.

 

 

With so much bad news in the price, valuations offer an attractive cushion. At below 12x forward earnings the region now trades at levels last seen in 2013, while the relative price to book ratio to US stands at multi decade lows.

 

Positive news-flow around Brexit, US-EU trade and Italian politics has scope to meaningfully raise potential upside. However, even in the absence of any improvement on these fronts, the region looks well positioned to recover from oversold levels.

 

By country, Citi analysts believe that French and Swiss equities stand out, and by sector Cyclicals look most attractive, in particular Financials, Technology and Health Care. They also continue to like the European energy sector.

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