European equities remain good value despite near-term risks, such as Italy's
political deadlock and sluggish economic growth, Goldman Sachs' equity
strategists write in a research note.
The Goldman team adds that investors looking for the best growth
opportunities should focus on the technology, household goods, healthcare and
automobile sectors, and avoid the telecoms and energy sectors.
It also backs insurance stocks over banking stocks in the financial sector.
Goldman upgrades the healthcare and technology sectors to "overweight" from
"neutral", highlighting healthcare stocks such as Novo Nordisk, Roche
and Shire among its top picks, and singles out Aveva,
CapGemini, Ericsson and SAP as its top technology
Goldman also raises its stance on the personal care and household goods
sector to "overweight" from "neutral", favouring stocks such as British American
Tobacco, L'Oreal and Richemont while maintaining an
"overweight" rating on the insurance sector.
Goldman takes "underweight" positions on the European telecoms, oil and gas
and retail sectors, highlighting UK retailer Sainsbury as a "sell".
"We continue to avoid domestic European consumer exposure given high
unemployment, weakness in wage growth, declining real disposal income and fiscal
austerity in most of Europe," writes Goldman.
Goldman says that, although there is good value in European stock markets,
investors should expect short-term volatility, arguing that the main impact of a
pledge last year by European Central Bank head Mario Draghi to protect the euro
currency has already been factored in by investors.
"We expect a modest recovery in global growth this year accelerating into
2014. European equities in our view remain good value, especially versus bonds,"
"But we are also cognisant that while a fall in the risk premium is likely
to be a longer term trend, there might be short-term volatility. First, the risk
premium has already fallen substantially post Draghi's comments in the summer in
support of peripheral sovereign debt. This limits room for further falls in the
near term," it adds.
"Second, growth remains weak in Europe and it remains unbalanced with the
peripheral euro area still in deep recession and likely to continue to suffer
from political risk because of this."
Reuters messaging rm://firstname.lastname@example.org