European stock markets torn between doubt and optimism

Posted on Apr 24, 2021, 10:20 a.m.

Too high, too fast? European stock markets have caught their breath in recent days after climbing to new highs. The violent return of the epidemic in emerging countries, the slowness of vaccination campaigns and the prospect of an increase in taxation on capital in the United States weighed on investor sentiment. The pan-European STOXX 600 index suffered its first weekly decline (-0.8%) in two months, while the CAC 40 fell 0.47%, putting an end to three consecutive weeks of increases.

Global equity valuations do indeed appear stretched, with multiples reaching highest levels since the dot com boom. », Emphasizes Emmanuel Cau of Barclays. It must be said that the speed at which the European markets regained color surprised professionals. The STOXX 600 remains close to its all-time high, set barely a week ago, and the CAC 40 is still evolving at its highest levels since 2000. Most European indices have increased by more than 10% since then. the start of the year and have already met analysts’ targets for the year.

The luxury engine of the CAC 40

However, ” fears about a market crash are not justified », Estimates Patrick Guérin of Bordier et Cie. ” Temporary corrections are normal and do not affect the bullish momentum He adds. ” As long as business results are there, there is no reason the markets should not continue to climb He insists. Expectations are high: Analysts are counting on a 53% increase in European company profits this year. But the first publications reassured investors, especially in the luxury sector.

LVMH (owner of the Les Echos-Le Parisien group), Kering or Hermès: the heavyweights of the CAC 40 have demonstrated their ability to bounce back with sales already exceeding the pre-crisis level in the first quarter. Asian and American consumers have pounced on luxury goods, failing to be able to spend their money abroad. Sales in Asia drove the entire sector: + 94% over one year for Hermès, + 86% for LVMH and + 83% for Kering. The large luxury groups have also been able to take advantage of the boom in e-commerce, which now represents a significant portion of their income.

Enough to bring the sector to historic highs. Kering, L’Oréal, Hermès and LVMH have all set new records in recent days. LVMH has been consolidated as the leading European capitalization, with a valuation close to 320 billion euros. Hermès for its part passed Sanofi in the CAC 40, with a valuation of more than 110 billion euros. The leading trio of the Parisian index, LVMH, L’Oréal and Hermès, is now entirely from the luxury sector, the real driving force behind the Paris Stock Exchange. Kering is not very far, sixth capitalization of the index behind Sanofi and Total, at 80 billion euros.

Share buybacks in support

Improving the profitability of European companies also enables them to return more capital to shareholders. Share buybacks have therefore started to rise again since the start of the year, a trend which should accelerate in the coming months. Already, several large groups listed in Paris have announced the launch of new programs, including Atos, Vinci, ArcelorMittal and Legrand.

Recently, Carrefour announced the repurchase of 500 million euros of its own shares after having published results above expectations, its first program in ten years. L’Oréal could spend up to 1.2 billion euros between May and June to acquire up to 3 million shares (0.5% of its capital). However, the prize goes to LVMH. The luxury group will offer its shareholders to authorize it to buy back up to 10% of its capital at a maximum price of 950 euros per share, i.e. a commitment of up to 50 billion euros.

These are all transactions that should maintain the positive dynamics of European markets in the months to come. On the one hand, corporate share purchases constitute a significant support factor for prices. On the other hand, by reducing the number of shares in circulation, these operations make it possible to mathematically increase earnings per share, a metric closely followed by professionals.

The stock markets of the Old Continent can still surprise, according to Jeanne Asseraf-Bitton of Lyxor: “ we are experiencing an unprecedented rebound, there are no historical benchmarks to refer to “. European stocks can return up to 9% within a year, including dividends, she argues. ” Everything has gone up a lot, but there is still room for improvement with two or three quarters of strong activity ahead of us without the central banks reducing their support She insists.

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