Julien Ponthus and Danilo Mammari

LONDON/MILAN – The prospect for European stocks reaching record highs in 2022 is not in doubt, according to a Reuters survey of 23 fund managers, analysts, and brokers. This was due to a rebound in corporate profits.

Based on the poll results, 40 bluechip indexes were predicted to reach new heights in mid-2022. The rise would be about 8% or 6%, respectively, from Monday’s close.

According to the Nov.15-30 poll, the pan-European would rise 7% and reach 500 point by July. That’s 10 points higher than its lifetime peak of Nov. 17.

European stocks fell by 3.7% Friday as fears of new coronavirus strains triggered widespread sell-off. But they have risen about 17% over the previous year.

This year’s performance was driven by a strong rebound in profits following the 2020 lockdown-triggered recession.

Refinitiv’s latest I/B/E/S data shows that profits rose 58.8% in the third quarter after gains of 96.4% & 152.6% respectively during the previous two quarters.

We expect earnings to drive global equity markets, which is the same for eurozone equities,” he stated. Credit Suisse (SIX:) chief global strategist Philipp Lisibach.

He expected high single-​digit equity returns in 2022 compared to double-​digit returns in 2021.

However, the recovery pandemic in Europe as well as announcements of social restrictions in Austria have ravaged morale.

HEADWINDS

Eurozone economic sentiment declined in November due to consumer worries about the fourth coronavirus wave. German business morale plummeted for five consecutive months in November, as the supply chain bottlenecks impacted manufacturing.

The headwinds are increasing in Europe due to rising energy costs, increased infections, and delayed deliveries. The situation creates some uncertainty but should ease by next year,” Tomas Hildebrandt (senior portfolio manager, Evli bank in Helsinki) said.

While most analysts remain optimistic about the future, some forecast a dark year for stocks.

Stephane Ekolo from the brokerage Tradition sees the STOXX 600 falling to about 30 points, or 430, at 2022’s end, due to slower economic growth.

Ekolo indicated that “I think corporate earnings are likely to decline over the next 6 months” due to continual supply-chain disruptions. Reopening boostfading. Potential risk of restrictions.

One of the risks mentioned by poll respondents was an increase in inflation, which would require the European Central Bank (ECB) to accelerate the decrease in monetary stimulus.

After a 4.6% increase in October, German consumer prices rose 6% annually. This puts more pressure on the ECB.

A rise in interest rates could boost European banks. They are up 28% already this year. European banks thrive when there is an increase in expectations.

Further uncertainty is likely in 2022 with the French election of president in April, where incumbent Emmanuel Macron will face a challenger from far-right.

Credit Suisse’s Lisibach stated that a victory by a euroskeptic president would pose a threat to European integration.

Graphic STOXX poll: https://fingfx.thomsonreuters.com/gfx/mkt/zgpomkqxnpd/STOXX%20november%20poll.JPG