Nomura on European Markets:
Germany is looked at as the savior of all Euro troubles, Nomura’s Equity Research on European Startegy agrees with this royal title so far. We summed up the analysis of Russia’s market in our previous post, in this update we will look at the market valuation of Germany and some European sectors, such as European banks. European banks have a low valuation based on price over book, as we demonstrate below.
Nomura thinks that Germany is undervalued at the present P/E as it outperforms all other major European markets. The German market still trades at a discount relative to the rest of the European market. The German market can be used as a hedge against any unfavorable turns from other countries in the eurozone.
In terms of commodity prices, the analysis observes that this sector in Europe is disconnected from the actual value of commodities. The actual prices are expected to fall even further but the corresponding valuation is even lower than that in 2009.
On the other hand, real estate is considered to be fairly valued. Unexpectedly, the report finds a chance of stimulus from China for commodities as it thinks that the government is making changes to their fiscal plans.
Capital goods sector fared well with very small fall in earnings. On a price/book ratio the sector is expensive with a 36 percent premium to the market. In coming quarters similar performance in earnings is therefore not expected. The Autos sector is the fourth best industrial performer for Europe, it still trades at a discount on a price/book basis. The sector profits 10 percent more than the rest of the market.
In Capital Goods, Nomura’s recommended stocks are: AMEC plc (LON:AMEC), Siemens AG (NYSE:SI) (FRA:SIE) (ETR:SIE) and Thales SA (EPA:HO).
Among cyclical stocks, the general retail sector outperformed throughout the year but for now it seems that the it has peaked to its maximum earnings and further appreciation is not expected. A 42 percent premium is required to buy the sector.
In Cyclicals, recommendations are: Deutsche Lufthansa AG (ETR:LHA) (PINK:DLAKY) (FRA:LHA), Deutsche Post AG (FRA:DPW) (ETR:DPW) and Electrolux AB (PINK:ELUXY).
In Industrials, the recommended stocks are, BHP Billiton Limited (NYSE:BHP), Antofagasta plc (LON:ANTO), CRH PLC (NYSE:CRH), Rio Tinto plc (NYSE:RIO) (LON:RIO) and ThyssenKrupp AG (FRA:TKA) (ETR:TKA).
In terms of the Financial sector in Europe, the insurance market is has shown stable earnings over the past two years and that has been expressed in the handsome dividend yields. Nomura surprisingly finds some overweight value in the banks of Europe despite of the recognized risks in the sector. This stands out from other reports that grades performance of European banks as unimpressive.
Nomura’s list of recommended banks includes names likes, Barclays PLC (LON:BARC) (NYSE:BCS), HSBC Holdings plc (LON:HSBA) (NYSE:HBC), BNP Paribas SA (EPA:BNP), UBS AG. Insurance firms include, Aviva plc (LON:AV), AXA (PINK:AXAHY), Swiss Life (XETRA: SLW.DE).