This week we direct our attention to Europe where several companies have turned in their second-quarter earnings reports. Those who follow our monthly newsletters would know that we have been tipping Europe to take over leadership from the US at some point.
With 85% of the STOXX Europe 600 Index companies having reported their results, earnings grew by a whopping 248% way ahead of the market expectation of growth of 155%. While there are some base effects exaggerating the reported growth, we are impressed by the fact that most of the companies are beating analysts’ expectations. The actual earnings of 70% of the companies which have reported so far – the majority being industrials, basic materials, and financials – have beaten analysts’ expectations.
The recovery in Europe is being powered by the ultra-loose monetary policy, healthy consumer balance sheets and economic reopening. Despite a sluggish start, the European Union’s COVID-19 vaccination drive has caught up to that of the early leaders like the United States and Israel and that is significantly boosting economic activity in the region.
Overall, we maintain our positive outlook on European equities and the strong company results reported so far strengthen our stance. We are aware of how hard European equities have run but we still find the region attractive relative to the US.
The above chart compares Q2 with Q4 and not Q2 vs Q1 as usual because not all European companies report Q1 results. Unlike in the US where companies are required to provide quarterly reports, quarterly reporting is optional for companies in the European Union. While many large companies in EU countries provide Q1 reports in line with U.S. counterparts most smaller ones do not which makes comparisons with Q1 difficult.