European stock markets: January to March financial report preview
2024-04-05
■ Major European companies are expected to experience a fourth consecutive quarter of revenue and profit decline
■ The feeling of undervaluation in stock prices has disappeared, and the expected impact of interest rate cuts on the upward space of stock prices is limited
According to statistics from financial information company LSEG (as of the 2nd), 329 companies in the European Stoxx 600 index that plan to release revenue for the first to third quarters are expected to see a 5.9% decrease in revenue compared to the same period last year. This means that revenue is expected to decline for the fourth consecutive quarter since the previous period (a decrease of 5.0%). Among all ten industries, except for the energy sector, eight industries with utilities (down 23.9%), real estate (down 17.7%), and finance (down 13.5%) are expected to experience revenue declines. It is expected that revenue in other industries will also decrease by 5.5%, even without considering the energy sector. In addition, according to the 296 companies that plan to release earnings per share (EPS) for the first to third quarters, it is expected that their EPS for the first to third quarters will decrease by 11.0% compared to the same period last year, indicating that the downward trend since mid-February (a decrease of 8.4%) is continuing. It is expected to experience a profit decline for the fourth consecutive quarter. Nine industries, including utilities (down 42.2%), materials (down 29.0%), and energy (down 23.8%), are expected to experience a decline in profits. Even without considering essential goods (non-cyclical consumer goods) industries, it is expected that profits in other industries will also decrease by 7.9%, and corporate performance will remain sluggish.
The market expects that with the end of the year-on-year revenue fluctuations (fundamental effect) caused by the significant fluctuations in energy prices, EPS will show a growth trend from April to June quarter. However, it is expected that the EPS growth rate in the next year will be 5.8%, which is relatively conservative. In this situation, the European Stoxx 600 index bottomed out at the end of October 2023 and rose by approximately 19% before the end of March. In addition to this index, major European stock price indices such as the FTSE 100 in the UK, DAX in Germany, and CAC in France reached historic highs during the same period. Although the European Stoxx 600 index is expected to decline by 1% during this period, the expected stock price return (PER) has significantly increased (from 11.5 times to 13.6 times). The main reason for the rise in stock prices during this period is believed to be the expected improvement in corporate performance brought about by the European economic recovery, rather than the early expectation of interest rate cuts by the European Central Bank (ECB). According to a senior ECB official's speech, inflation has slowed faster than expected and is expected to begin cutting interest rates in June, which has driven up stock prices.
The expected PER is close to the average level since 2018 (14.2 times), and the feeling of undervaluation in stock prices has disappeared. The impact of expected interest rate cuts on the upward space of stock prices is limited. In addition, considering the relatively small weight of the technology industry and the difficulty in benefiting from the expected expansion of global demand for artificial intelligence (AI), the year-end expected value of the European Stoxx 600 index is set at 510 points, with an expected upward space of 550 points for the year. If, apart from within Europe, the Chinese economy also begins to
■ The feeling of undervaluation in stock prices has disappeared, and the expected impact of interest rate cuts on the upward space of stock prices is limited
According to statistics from financial information company LSEG (as of the 2nd), 329 companies in the European Stoxx 600 index that plan to release revenue for the first to third quarters are expected to see a 5.9% decrease in revenue compared to the same period last year. This means that revenue is expected to decline for the fourth consecutive quarter since the previous period (a decrease of 5.0%). Among all ten industries, except for the energy sector, eight industries with utilities (down 23.9%), real estate (down 17.7%), and finance (down 13.5%) are expected to experience revenue declines. It is expected that revenue in other industries will also decrease by 5.5%, even without considering the energy sector. In addition, according to the 296 companies that plan to release earnings per share (EPS) for the first to third quarters, it is expected that their EPS for the first to third quarters will decrease by 11.0% compared to the same period last year, indicating that the downward trend since mid-February (a decrease of 8.4%) is continuing. It is expected to experience a profit decline for the fourth consecutive quarter. Nine industries, including utilities (down 42.2%), materials (down 29.0%), and energy (down 23.8%), are expected to experience a decline in profits. Even without considering essential goods (non-cyclical consumer goods) industries, it is expected that profits in other industries will also decrease by 7.9%, and corporate performance will remain sluggish.
The market expects that with the end of the year-on-year revenue fluctuations (fundamental effect) caused by the significant fluctuations in energy prices, EPS will show a growth trend from April to June quarter. However, it is expected that the EPS growth rate in the next year will be 5.8%, which is relatively conservative. In this situation, the European Stoxx 600 index bottomed out at the end of October 2023 and rose by approximately 19% before the end of March. In addition to this index, major European stock price indices such as the FTSE 100 in the UK, DAX in Germany, and CAC in France reached historic highs during the same period. Although the European Stoxx 600 index is expected to decline by 1% during this period, the expected stock price return (PER) has significantly increased (from 11.5 times to 13.6 times). The main reason for the rise in stock prices during this period is believed to be the expected improvement in corporate performance brought about by the European economic recovery, rather than the early expectation of interest rate cuts by the European Central Bank (ECB). According to a senior ECB official's speech, inflation has slowed faster than expected and is expected to begin cutting interest rates in June, which has driven up stock prices.
The expected PER is close to the average level since 2018 (14.2 times), and the feeling of undervaluation in stock prices has disappeared. The impact of expected interest rate cuts on the upward space of stock prices is limited. In addition, considering the relatively small weight of the technology industry and the difficulty in benefiting from the expected expansion of global demand for artificial intelligence (AI), the year-end expected value of the European Stoxx 600 index is set at 510 points, with an expected upward space of 550 points for the year. If, apart from within Europe, the Chinese economy also begins to