European stocks: The sense of excessive depreciation is on its way back
2023-01-25
■ The recent stock price rise has good expectations due to the correction of excessive depreciation
■ If there is an expectation of performance improvement, the share price may continue to rise higher than expected
Major European companies will report their financial results in the fourth quarter of last year. Among the constituent enterprises of the STOXX Europe 600 Index, 28 companies are scheduled to release their financial results this week. The European stock market will now release the final accounts of individual enterprises and the management's information on the future business environment in a mixed way.
According to the statistics supplemented by the Financial Information Corporation (as of the time point of the 17th), the sales of companies constituting the STOXX Europe 600 Index increased by 4.0% in the quarter from October to December, up 27.4% from the same period last year The statistics assume that the increase in the income of consumer goods and energy industries is offset by the decrease in the income of real estate and public utilities. Earnings per share (EPS) increased by 10.7% year on year, down sharply from the beginning of October (up 22.3% year on year). The energy sector (up 40.0% year on year) and the financial sector (up 36.1% year on year) will drive the overall growth, but among the 10 major sectors such as raw materials (down 39.4% year on year), public welfare (down 25.2% year on year) and real estate (down 23.5% year on year), 6 of them are expected to have the same decline. The forecast growth rate of earnings per share for the whole year of 2023 is 1.8%, which has been continuously reduced since the beginning of February last year (7.5%). It is expected to maintain a relatively low growth rate of 6.7% in 2024. Unless there is a more serious economic slowdown, the downside risk of the earnings outlook seems to have been eliminated to some extent.
The market speculated that the European Central Bank (ECB) would continue to raise interest rates. Due to the easing of worries about energy shortage in Europe's historic warm winter, and the change of China's zero epidemic policy, the economic recovery is expected to drive the stock market price. The stock market yield (PER, next year) is 12.5 times, close to the lower end of the median range (12-15 times) of 2014-2019 before the epidemic, and the sense of excessive depreciation has disappeared. The main reason for the recent rise in share prices is that the economic deterioration has eased the recovery of the P/E ratio, and it is judged that there is a good expected value. If this is connected with the expected improvement of corporate performance, the share price may continue to rise more than expected.