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GOLDMAN: It’s Time To Bet On A Big Comeback In Europe
Many analysts, strategists, and economists forecast that the U.S. is entering a long-term period of outperformance against Europe as the eurozone deleverages and battles financial crisis.
However, Goldman Sachs equity strategists Christian Mueller-Glissmann and Peter Oppenheimer think it’s time to bet on a comeback in Europe. In their latest note to clients, they make an unusual trade recommendation – buy companies with exposure to the European economy and sell companies with exposure to the United States.
Here is their reasoning:
Long GSSTDOME vs. Short GSSTAMER: We recommend a long position in our GSSTDOME basket of European companies with high sales exposure to the Euro Area vs. a short position in our GSSTAMER basket of European companies with high sales exposure to the US. GSSTAMER has performed strongly relative to GSSTDOME year to date and is now trading at a significant premium. We think this is likely to reverse as the European sovereign situation improves. Also, this trade position tends to perform when the euro strengthens vs. the US dollar; as such, this trade is in line with our FX strategists’ recommendation to go long the euro vs. the US dollar.
The strategists are also bullish on emerging markets even though everyone is worried about how the global slowdown is affecting major growth markets like China.
In other words, they expect that emerging markets will do better than Europe, which will do better than the United States:
Long GSSTBRIC vs. Short GSSTDOME: We recommend a long position in our GSSTBRIC basket of European companies with high sales exposure to the BRICs economies vs. a short in our GSSTDOME basket of European companies with high sales exposure to the Euro Area. On a P/E basis the valuation of these two baskets is similar. While GSSTDOME could perform well in the near term, we believe GSSTBRIC is better positioned from a long- term perspective due to higher economic growth rates in the BRICs economies and our anticipation that growth momentum in China is in the process of turning.
Spanish stocks have already rallied hard, outperforming U.S. stocks by 11.3 percent over the past month.