Neil Hall / Reuters
- While worldwide stock markets are likely to win in 2020, Goldman Sachs especially defends European stocks.
- For Europe and the US UU., “Cash yield”, dividend yield plus repurchase yield, in European stocks is well above the risk-free bond yield.
- Goldman says he is “taller now than at any other time since the financial crisis.”
- That gives the region’s actions a “substantial yield cushion.”
- In addition, investors are likely to “increasingly focus on the electoral risk of the United States and less on risks in Europe,” Goldman wrote.
- See the Business Insider homepage for more stories.
“For much of the last decade, the United States has significantly outperformed other equity markets, and for good reason,” wrote Peter Oppenheimer, head of global equity strategy and head of macro research in Europe at Goldman Sachs, in a note on monday.
One of those reasons is the rise of valuations in 2019, which he says has been driven by the central bank’s flexibility.
“While earnings generally tend to recover sharply in the year following a strong expansion of the valuation, this is not our expectation for this year and next,” he wrote. “As long as the economic cycle continues to expand, and we expect it to do so, earnings are likely to grow and stocks should move forward in equilibrium until 2020 as a whole.”
Looking at the equity regions more closely:
“The US stock market has managed to increase its EPS by about 90% from its pre-crisis peak, compared to only 17% in Asia, 12% in Japan and an insignificant 4% in Europe” Goldman wrote. “The weakness of earnings in Europe partly reflects its value-dominated sector composition.”
When Goldman adjusted the benchmark for Europe to mimic the sectoral weights of the S&P 500, “it would have seen a growth of around 50% in EPS.” And repurchases in the United States also explain a large part of this EPS growth gap.
“In the coming years, this gap is likely to narrow, suggesting less obvious triggers for the superior performance of the United States,” the bank wrote. Therefore, although “we do not see very compelling reasons to expect other equity markets to significantly outweigh,” Oppenheimer wrote, investors are likely to “increasingly focus on US electoral risk and less on risks in Europe and Asia, “which makes” a good argument for greater geographic diversification. “
For Europe and the US In the US, “Cash yield (shown here as dividend yield plus repurchase yield) in shares remains well above the risk-free bond yield,” Goldman wrote. “In the case of Europe, this gap is greater now than at any other time since the financial crisis.”
That gives the region’s actions a “substantial yield cushion.”
And, Goldman notes, “almost 100%” of European companies have a dividend yield greater than the performance of their corporate bonds. Look at the comparison between the European benchmark and the US S&P 500. UU. In the box below.