BofA lifted its earnings growth forecast from 7-8% to 11% for 2017 and 8% for 2018 on better growth, a weaker euro and strong commodity prices. “If achieved, 2017-18 would be the best years for European earnings since the global financial crisis.”
Merrill is ‘overweight’ European oils, media, pharmaceuticals and utilities. It is ‘underweight’ UK retail and travel and leisure as they are exposed to the UK consumer on delayed Brexit pain, and food amp; beverages.
Merrill’s target for 2017 means +10% total returns for European equities this year if you include dividend yield.
“Despite these upgrades, the sharp year-end rally limits our ability to be more bullish. We are already forecasting earnings that are likely to defy the usual downgrade from the bottom-up consensus.
“To get more bullish than that, we would have to either be more confident of earnings growth or willing to put European equities on a higher multiple. The latter is perhaps possible if the political risks surrounding Europe diminish post the French election, particularly if some of the reforms promised by Fillon or Macron are forthcoming.”