European stock markets: Q2 2022 financial report preview
2024-07-19
■ Major European companies are expected to achieve their first increase in revenue in five quarters but are expected to see a decrease in profits for the fifth consecutive quarter.
■ The economic weakness in Europe and China and the unclear timing of the European Central Bank's interest rate cuts have put pressure on the stock market.
According to data from financial information company LSEG, as of the 16th, among the constituent companies of the European Stoxx 600 Index, the sales of 371 companies expected to release their second-quarter revenue are expected to increase by 1.1% year-on-year. This will be the first time in five consecutive quarters that they have achieved revenue growth after a 4.6% year-on-year decline in sales in the previous quarter. Among all the top ten industries, five industries, including real estate (down 19.8%) and consumer goods (down 6.9%), are expected to experience a decline in sales. In comparison, five industries, including utilities (up 17.9%) and finance (up 4.4%), are expected to achieve sales growth. In addition, the second quarter EPS of 316 companies expected to release earnings per share (EPS) is expected to decline by 0.8% year-on-year, indicating a downward revision since late June (expected growth of approximately 3.1%) and a fifth consecutive quarter of earnings loss. Five industries, including utilities (up 16.0%) and energy (up 6.3%), are expected to achieve profit growth. In comparison, five sectors, including information technology (down 35.0%) and capital goods (down 8.9%), are expected to experience a decline in profits, indicating a sluggish trend in corporate performance.
The market anticipates an EPS growth rate of 8.3% for the European Stoxx 600 index next year. While this rate has been on an upward trend since the beginning of the year, it still lags behind the 13.2% of the US S&P 500 index. The proportion of the information technology industry in the European Stoxx 600 index is 4.5%, significantly lower than the 23% in the S&P 500 index, which may limit the potential benefits from the expected expansion of demand for artificial intelligence. Industries such as finance (27.6%), capital goods (13.6%), and general consumer goods (12.6%) are heavily influenced by interest rates and economic trends. The absence of industries such as energy in 2022 and finance in 2023 as drivers of overall EPS growth, coupled with long-term sluggish personal consumption and low internal growth in China, could constrain EPS growth.
• the expected price-to-earnings ratio (PER) of the European Stoxx 600 index rose to around 13 times in late May against the backdrop of expectations of interest rate cuts by the European Central Bank. However, since the decision to cut interest rates in June, it has been difficult to predict the timing of further rate cuts, and due to factors such as political uncertainty in France, the price-to-earnings ratio has stopped at around 13 times. Although it has not reached the average level since 2018 (14.2 times), significant overvaluation pressure has not been felt. Still, the upward momentum of the P/E ratio is expected to be limited. The stock price is likely to rise with the growth of EPS, and the expected year-end value of the European Stoxx 600 index is 520 points, with a potential increase of 570 points for the whole year. If the economic recovery within Europe and China goes smoothly, and the performance prospects of European companies improve, the view that stock prices may rise from both EPS and PER perspectives will not change, offering a promising outlook for the market.
■ The economic weakness in Europe and China and the unclear timing of the European Central Bank's interest rate cuts have put pressure on the stock market.
According to data from financial information company LSEG, as of the 16th, among the constituent companies of the European Stoxx 600 Index, the sales of 371 companies expected to release their second-quarter revenue are expected to increase by 1.1% year-on-year. This will be the first time in five consecutive quarters that they have achieved revenue growth after a 4.6% year-on-year decline in sales in the previous quarter. Among all the top ten industries, five industries, including real estate (down 19.8%) and consumer goods (down 6.9%), are expected to experience a decline in sales. In comparison, five industries, including utilities (up 17.9%) and finance (up 4.4%), are expected to achieve sales growth. In addition, the second quarter EPS of 316 companies expected to release earnings per share (EPS) is expected to decline by 0.8% year-on-year, indicating a downward revision since late June (expected growth of approximately 3.1%) and a fifth consecutive quarter of earnings loss. Five industries, including utilities (up 16.0%) and energy (up 6.3%), are expected to achieve profit growth. In comparison, five sectors, including information technology (down 35.0%) and capital goods (down 8.9%), are expected to experience a decline in profits, indicating a sluggish trend in corporate performance.
The market anticipates an EPS growth rate of 8.3% for the European Stoxx 600 index next year. While this rate has been on an upward trend since the beginning of the year, it still lags behind the 13.2% of the US S&P 500 index. The proportion of the information technology industry in the European Stoxx 600 index is 4.5%, significantly lower than the 23% in the S&P 500 index, which may limit the potential benefits from the expected expansion of demand for artificial intelligence. Industries such as finance (27.6%), capital goods (13.6%), and general consumer goods (12.6%) are heavily influenced by interest rates and economic trends. The absence of industries such as energy in 2022 and finance in 2023 as drivers of overall EPS growth, coupled with long-term sluggish personal consumption and low internal growth in China, could constrain EPS growth.
• the expected price-to-earnings ratio (PER) of the European Stoxx 600 index rose to around 13 times in late May against the backdrop of expectations of interest rate cuts by the European Central Bank. However, since the decision to cut interest rates in June, it has been difficult to predict the timing of further rate cuts, and due to factors such as political uncertainty in France, the price-to-earnings ratio has stopped at around 13 times. Although it has not reached the average level since 2018 (14.2 times), significant overvaluation pressure has not been felt. Still, the upward momentum of the P/E ratio is expected to be limited. The stock price is likely to rise with the growth of EPS, and the expected year-end value of the European Stoxx 600 index is 520 points, with a potential increase of 570 points for the whole year. If the economic recovery within Europe and China goes smoothly, and the performance prospects of European companies improve, the view that stock prices may rise from both EPS and PER perspectives will not change, offering a promising outlook for the market.