Strategists at Morgan Stanley upgrade European equities to “attractive” from “neutral” in a 2013 outlook, expecting double-digit percentage growth from the MSCI Europe index with earnings revisions beginning to improve and global economic indicators appearing to be troughing.
“At a weak 3.1 percent, 2013 global GDP growth is likely to be comparable to this year. However, the absence of large margin contraction should allow for 5 percent EPS growth next year,” the strategists say in a note, also forecasting 9 percent EPS growth for 2014.
On a sector-basis, the strategists upgrade autos and pharmaceuticals to “overweight” and downgrade telecoms and utilities.
“We continue to prefer Europe to the U.S. and look to increase our exposure to overseas, rather than domestic, growth. At the headline level we are agnostic on growth versus value but there are opportunities at the sector level,” they say in a note.
The strategists say value investors should look within materials, energy, staples (especially food retail) and utilities for the best relative opportunities.
Morgan Stanley has a base case target for the MSCI Europe local currency index of 1,258 points, offering 13 percent upside, with its bull case target of 1,560 showing 40 percent upside, and its bear case target of 825 pointing to 26 percent downside.
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