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Here’s why the Euro Stoxx 50 has soared as Europe economy contracts

By: Invezz
Image for Bayer cancer lawsuits

European stocks are thriving as the global equities rally gains steam. The Euro Stoxx 50, which tracks the 50 biggest publicly traded companies, has soared to an all-time high (ATH) of €4,840, which is significantly higher than its November low of €3,990. It has risen by about 50% from its pandemic low.

The index has surged even as concerns about European’s economy remains under pressure. Data released on Thursday revealed that inflation is a big issue as it remained above the European Central Bank (ECB) target of 2.0%.

Further numbers revealed that the manufacturing sector is still contracting. In Europe, the manufacturing PMI rose to 49.8, which is lower than the expansion zone of 50.

In Germany, the biggest economy in the bloc, the manufacturing PMI retreated to 42.3 while the composite PMI fell to 46.1. 

The services PMI figure in France also remained below 50 in February. Therefore, these numbers mean that the ECB will likely move faster than the Federal Reserve when it comes to cutting interest rates. 

Analysts expect that the ECB could cut rates as early as in March or May. In its minutes on Wednesday, the Fed said that it had concerns about cutting rates soon since inflation remains at an elevated level.

The ECB outlook is one of the reasons why the Euro Stoxx 50 index has surged to a record high. The other reason is that investors believe that European stocks are severely undervalued compared to their American peers. 

For example, the S&P 500 index has a PE ratio of 24 while the Euro Stoxx has a multiple of less than 17, making it a bargain.

The Euro Stoxx index has also roared because of the ongoing bull run in the stock market. In the US, the S&P 500 and Nasdaq 100 indices have all surged to a record high.

Most companies in the Stoxx 50 index have rallied in the past 12 months. SAP, ASML, Inditex, Stellantis, and Safran have been the best performers in the index. 

On the other hand, German and French companies have been the worst performers. Bayer, the troubled healthcare company, has crashed by over 51% in the past 12 months. This sell-off continued this week as the company slashed its dividend.

French companies like Kering, Pernod Rickard, and BNP Paribas are the other three laggards as their stocks have retreated by over 13%. The other top laggards in the index are BASF, Prosus, and Volkswagen.

The post Here’s why the Euro Stoxx 50 has soared as Europe economy contracts appeared first on Invezz

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