Outlook for European Stock Markets in 2024
2023-12-13
■ Expected correction of undervaluation, but weak improvement in profitability, making it difficult for the stock market to continue rising.
■ If the prospects for economic recovery in Europe and China improve, the upward space for stock prices will expand.
The Stoxx Europe 600 index in 2023 mainly fluctuates between 420 and 470 points. In March, due to the bankruptcy of local banks in the United States, the operational uncertainty of Swiss financial giants sharply increased, leading to a sharp decline in stock prices. Subsequently, the Swiss central bank quickly provided liquidity, and the acquisition agreement lifted excessive concerns about financial instability. In addition, China's economic recovery expectations increased, and stock prices rebounded rapidly. However, due to increased concerns about a slowdown in the eurozone economy and the belief that the European Central Bank (ECB) will maintain high policy interest rates for an extended period, the upward trend of stock prices has been restricted. Due to weakened demand in China and a weak domestic economy, major companies performed poorly in the July-September quarter, leading to a significant drop in stock prices in October. However, with the weakening of expectations for interest rate cuts by the ECB and the earlier start of interest rate cuts in 2024, Stoxx Europe 600 reached a new high since the beginning of the year in December.
In 2023, the European stock market performed poorly. Comparing the beginning of year gains and losses of major global stock markets (as of the 11th), the Stoxx Europe 600 index was 11.5%, far lower than Japan (TOPIX, 24.7%) and the United States (S&P500, 20.4%). One of the reasons is the relatively low expectation of profit improvement. The Stoxx Europe 600 index's earnings per share (EPS) growth rate for the next year is 5.9%, lower than the United States (S&P500, 10.8%) and Japan (TOPIX, 9.5%).
In 2024, due to the weak economic recovery in China and the uncertain economic outlook within Europe, it is expected that expectations for improved corporate profits will be difficult to increase. The expected price-to-earnings ratio (PER, next year) of this index is 12.2 times, lower than the average since 2018 (14.2 times) and at a relatively cheap level. Although there may be a valuation correction (PER increase) leading to a stock market rally if the ECB's interest rate cut expectation heats, the upward space for stock prices may be limited in the first half of 2024. With Europe and China's prospects rebounding by the end of the year, stock prices are expected to continue to rise. It is expected that the Stoxx Europe 600 index will rise to 530 points in 2024, with a year-end forecast of 490 points.
■ If the prospects for economic recovery in Europe and China improve, the upward space for stock prices will expand.
The Stoxx Europe 600 index in 2023 mainly fluctuates between 420 and 470 points. In March, due to the bankruptcy of local banks in the United States, the operational uncertainty of Swiss financial giants sharply increased, leading to a sharp decline in stock prices. Subsequently, the Swiss central bank quickly provided liquidity, and the acquisition agreement lifted excessive concerns about financial instability. In addition, China's economic recovery expectations increased, and stock prices rebounded rapidly. However, due to increased concerns about a slowdown in the eurozone economy and the belief that the European Central Bank (ECB) will maintain high policy interest rates for an extended period, the upward trend of stock prices has been restricted. Due to weakened demand in China and a weak domestic economy, major companies performed poorly in the July-September quarter, leading to a significant drop in stock prices in October. However, with the weakening of expectations for interest rate cuts by the ECB and the earlier start of interest rate cuts in 2024, Stoxx Europe 600 reached a new high since the beginning of the year in December.
In 2023, the European stock market performed poorly. Comparing the beginning of year gains and losses of major global stock markets (as of the 11th), the Stoxx Europe 600 index was 11.5%, far lower than Japan (TOPIX, 24.7%) and the United States (S&P500, 20.4%). One of the reasons is the relatively low expectation of profit improvement. The Stoxx Europe 600 index's earnings per share (EPS) growth rate for the next year is 5.9%, lower than the United States (S&P500, 10.8%) and Japan (TOPIX, 9.5%).
In 2024, due to the weak economic recovery in China and the uncertain economic outlook within Europe, it is expected that expectations for improved corporate profits will be difficult to increase. The expected price-to-earnings ratio (PER, next year) of this index is 12.2 times, lower than the average since 2018 (14.2 times) and at a relatively cheap level. Although there may be a valuation correction (PER increase) leading to a stock market rally if the ECB's interest rate cut expectation heats, the upward space for stock prices may be limited in the first half of 2024. With Europe and China's prospects rebounding by the end of the year, stock prices are expected to continue to rise. It is expected that the Stoxx Europe 600 index will rise to 530 points in 2024, with a year-end forecast of 490 points.