LONDON (Reuters) - The pan-European STOXX 600 index is expected to gain a further 20% and hit 400 points by August, while business activity sentiment in the region could rise back to above 50 by the third quarter, BofA said on Friday.
Economic activity in Europe ground to a halt in March and April as world governments imposed lockdowns in a bid to contain the coronavirus pandemic.
As the daily growth rate of confirmed COVID-19 cases slowed in some countries, prompting them to lift some of their containment measures, BofA said it expected economic activity to pick up month-on-month and push IHS Markit’s Flash Composite Purchasing Managers’ Index (PMI) back above 50 in the third quarter.
The STOXX 600, which has risen by more than 20% over the past month, hardly reacted on Thursday to data showing the bloc’s PMI, seen as a good gauge of economic health, had sank to 13.5, its lowest on record since the survey began in mid-1998.
“In our view, the explanation for equities’ resilience is the market’s awareness that the root cause of the economic slump - the spread of Covid-19 - is fading,” the U.S. bank said.
BofA added it expected a further 20% gain for European cyclical stocks versus defensive stocks by the third quarter.
It remained overweight autos, banks, capital goods, resources and on consumer staples as a defensive hedge, but lowered telecoms to underweight and remained underweight pharma.
Reporting by Joice Alves; editing by Simon Jessop