{"id":60542,"date":"2017-02-09T01:15:00","date_gmt":"2017-02-09T00:15:00","guid":{"rendered":"http:\/\/beta.next-finance.net\/opinion\/upgrading-european-equities-downgrading-em-debt\/"},"modified":"2019-12-31T01:44:19","modified_gmt":"2019-12-31T00:44:19","slug":"upgrading-european-equities-downgrading-em-debt","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/opinion\/upgrading-european-equities-downgrading-em-debt\/","title":{"rendered":"Upgrading European equities; downgrading EM debt"},"content":{"rendered":"

We are upgrading our view of European equities to overweight from neutral. We
\nsee European stocks as big beneficiaries of the broadening global reflationary
\nenvironment and believe investors are too skeptical of the region\u2019s prospects. <\/p>\n[\"european_equity_earnings_growth_estimates_2011-2017.jpg\"
\n->http:\/\/www.next-finance.net\/IMG\/jpg\/european_equity_earnings_growth_estimates_2011-2017.jpg]\nAnalysts repeatedly slashed their European earnings growth forecasts in recent
\nyears as early optimism faded. Yet 2017 appears different, with upgrades following
\na late 2016 upward trend. Projected earnings growth is now mostly coming from
\ncyclical sectors that benefit from improving global growth and a weaker euro.<\/p>\n

A brighter outlook<\/strong><\/p>\n

The economic outlook is picking up. Our BlackRock GPS gauges show the U.S.-led bout of reflation leading to stronger growth
\noutlooks globally. Recent upside surprises in European growth and inflation confirm the positive GPS signals. We believe European
\nequities should benefit in such a reflation scenario, absent any other shocks. <\/p>\n

European earnings have historically been more
\nsensitive to global economy pick-ups than U.S. counterparts, given European firms\u2019 lower margins and large revenue exposure to
\nglobal and emerging markets (EM), our analysis shows.<\/quote><\/p>\n

Yet economic and political shocks have kept investors overly cautious toward European equities, in our view. We believe the political
\nrisk priced into European markets around upcoming French and German elections is overstated. A likely Italian election may prove
\nto be a populist flashpoint, but the major risk to our view is that a global slump cuts short the reflation trend. Our GPS data imply
\nthis is an unlikely scenario in the near term.<\/p>\n

Elsewhere, we have cut EM debt and Asian fixed income to neutral from overweight. We see long-term opportunities in EM bonds,
\nbut higher valuations give us pause today. We favor EM equities and European stocks that benefit from global growth including EMs.