The economy, reflected in this case in the stock market and this in turn in listed companies, has been a good gauge to measure the severity of the impact caused by the coronavirus pandemic, first in a brutal demand shock and later also transferred to the offer.
Of course, with huge divergences between geographies and sectors. After the initial dry stop and the subsequent, but limited, recovery, the vaccination process accelerated the engine of the economy, which has in this summer and the rest of the year the turning point to fully depress the pedal to recover speed cruise in which he was traveling until February of last year.
This, which has already been reflected in some advanced macro data such as the PMI and even in the GDP of some world power such as China, is about to reach the entire business fabric, reflected in its benefits.
Based on the estimates that the consensus of analysts collected by FactSet makes, in Europe only the German Dax will recover the EPS (earnings per share) that it had in 2019 this year . On the other side of the Atlantic, the S&P 500 and the Nasdaq 100 will also do it.
From WisdomTree they point out that the last season of results, that of the first quarter, in the United States “has been exceptional, with a year-on-year growth of 46% compared to the 24% that was expected before starting, thanks, above all, to sectors such as financial and consumer discretionary “.
“In Europe, profits have boosted 25% this first quarter, well above expectations, being the biggest improvement [compared to forecasts] since 2009,” they add. “Historically, the benefits tend to be underestimated after the end of a recession, probably because analysts do not take due account of operating leverage when growth is strong,” they clarify from Edmond de Rothschild AM.
In the Old Continent, the one that suffered the greatest impact on its earnings per share during 2020 was the Ibex 35, which saw its EPS drop by 67% to 236 euros per share, while, for example, in the EuroStoxx 50 fell 35% .
However, the Spanish index will also be the one with the greatest recovery since then. If EPS for 2020 is compared with that expected for 2021, the projected growth is 100% . In other words, it will double in just one year, to 475 euros per share, 60 percentage points more growth than the EuroStoxx 50.
And furthermore, for 2022, it will also be the selective one that achieves a greater rebound in its profits, with another 30% additionalDespite this, it is the only major stock market that will not have recovered the earnings per share of 2019.
Already this second quarter an acceleration of growth is expected, as explained by Bank of America. “We anticipate an increase in EPS of 123% compared to the second quarter of last year, which will leave an annual balance of between 34% and 45% in Europe.”
The direct consequence of this is to put the focus of investment back in Spain, with the aim of taking advantage of that differential that it has to close with the rest of the stock exchanges. Thus, the Ibex is the index among the main ones in the world that is cheaper per PER – times that the benefit is included in the share price – for 2022 with respect to what is being paid now, for the benefits of this year.
In numbers, the Ibex is trading at a PER of 18.4 times 2021 earnings , above the EuroStoxx 50, the German Dax and the Italian Ftse Mib and only below the French CAC. However, looking to 2022, the benefits of the Spanish stock market are cheaper by 16.8%, more than any other.
In the EuroStoxx there is a reduction of 10.4% while in the Ftse Mib it is 15%, also above 10% of the S&P 500. This allows the Ibex to go from trading with a premium over Europe and France to doing so at a discount , although it will maintain the price premium with respect to the Dax and the Italian index.
“Our opinion is that Europe is facing an opportunity to emerge from its stagnation and, at least, for a few years to maintain relatively high growth rates,” explains Nicolás López, Singular Bank’s director of equity analysis.
“If we add to this its lower valuations, it seems reasonable to expect a better relative performance of the European stock market against Wall Street and in the case of Spain it would be equivalent against Europe, although the Ibex has little sector diversification and it is not advisable to concentrate excessively investments in it, “adds the expert.
Whenever there is a time when stocks rise, in turn expanding multiples, we speak of a bubble. This time, some analysts point out that it must be taken into account that the premium paid for equities is logical that it is higher considering the risk that exists in fixed income before the definitive arrival of inflation.
From Vontobel they expect the portfolio rotation to continue from growth at high multiples to the value bias , with lower multipliers.
Five point difference from the vaccine
It could be said that one of the major turning points for the market in recent months occurred at the beginning of November, when the US elections were held and, above all, Pfizer announced the results of its trials on the vaccine for Covid-19, better than expected and that, as it has been, key to economic recovery.
Since October 30, when the European stock market hit a second annual floor, the EuroStoxx has recorded a rise of 37%, while the Ibex 35 achieved more than 42%, 5 percentage points more . It is striking in this regard that the S&P 500, which usually achieves higher returns, has risen 10 points less than Europe since then.