JP Morgan om varför det är stor uppsida kvar

1. P/E-talet (forward) kan öka från 12.2 till 13 och varför inte ännu mer nu när "a) PMIs are accelerating – with positive internals, b) flows are starting to support equities and c) European policymakers, both BoE and ECB, are in essence suggesting that there will be no monetary tightening for at least the next 2-3 years from here"

2. Vinsterna kan öka mer än väntat; nästa års vinsttillväxt kanske blir närmare 30% än väntade 14%.

=> JP Morgan spekulerar i att Europa kan ta igen hälften av S&Ps outperformance på 56% kommande 1-2 år


Från JP Morgan

• It appears that the bullishness on Europe has rapidly become a fully consensus call by the sell side. Eurozone equities have been the best performing region over the past month, with Banks the leading sector, at +20%. Still, we find that investors are less comfortable with this view. Many we speak with struggle to see any meaningful earnings growth in the region and don’t believe Euro equities are attractively priced anymore, given the recent rerating.


• We think both earnings and P/Es could be the source of further gains as: 1) Consensus is looking for 14% EPS growth for Eurozone in ’14, following 0% growth rate this year. This forecast might appear demanding at face value, but typically real GDP growth rate of 1% was the threshold at which profit margins start to expand. Our economists expect Euro area to achieve this run rate by Q4 of this year.

• In addition, we note that leverage was much greater around the inflection point in earnings. In the past 3 instances when Euro earnings growth rate moved from negative to positive, in ’94, ’03 and in ’10, the rebound in the EPS growth was at least +30% or more. The largest contribution to EPS growth tended to come from Financials and Discretionary. If JPM projections of a turn to positive Eurozone real GDP growth next year are correct, the upswing in earnings could be much greater than what consensus is currently factoring in.

• 2) Can P/E multiple rerate further from the current 12.2x forward? P/Es are positively correlated to PMI levels and to their momentum. PMI at 50+ calls for P/E closer to 13x.

• Furthermore, at some point in every cycle the multiple typically moves to a premium to historical. When can that happen? Why not now, as: a) PMIs are accelerating – with positive internals, b) flows are starting to support equities and c) European policymakers, both BoE and ECB, are in essence suggesting that there will be no monetary tightening for at least the next 2-3 years from here => a recipe for P/E rerating.

• Eurozone equities have underperformed the US ones by 56% since the end of 2009. Potential for the start of the upswing in earnings plus 5-10% higher P/Es from here suggest that perhaps half of this gap could close over the next 1-2 years.

• We upgraded Europe to OW on 15th July – see report, and reiterate key ways to position for the European recovery trade through Autos, Banks, Value style, as well as the JPDEUEZR and JPDEUUKR baskets. We also reiterate our June’s upgrade of Mining