JP Morgan: Buy the dips – The opportunities from the new wave of the pandemic – The estimates for Greece and the European top picks
Her Eleftherias Kourtali
The current fourth wave of the pandemic is unlikely to be a major or lasting problem, given JP Morgan’s positive stance on stocks, especially in Europe.
As she points out, she has received several questions from her clients underscoring the concern of investors that entering the winter months the situation can only get worse.
Indeed, some Western European countries – including Austria, Germany, Greece, the Netherlands and Ireland – have now imposed stricter mobility restrictions and it is likely that we will have more news about the introduction of mobility restrictions in other European countries in the coming weeks. However, the situation is not comparable to what we saw last winter, both in terms of duration and severity. Then, the mobility of people decreased by 40-50%, while now it has decreased by 6% from the highs.
It is clear, as the US bank points out, that the wide gap that has opened between cases and hospitalizations is maintained, thanks to vaccines, which is a very positive development and is a huge difference compared to last winter.
In addition, authorities could use the current high number of cases in many places to force the unvaccinated part of the population to get vaccinated and proceed with the booster vaccination of the third dose, which would reduce the pressure.
Most importantly, this winter could be the last time COVID-19 hospitalizations are significant enough to lead to mobility restrictions. The initial results from the Merck pill for the treatment of COVID-19, and especially from Pfizer, are very encouraging, and are likely to be the game changers for the pandemic. Although this is not related to the current wave, it is likely to become more widely available from March / April, which will then reduce the need for new lockdowns, as the pressure on hospital capacity will be significantly reduced.
From the point of view of the stock market, While many investors are quite worried about the risk of the current wave in the short term, JP Morgan believes that stocks will not react significantly to possible further mobility restrictions and recommends seeing any “dives” as an opportunity to increase positions. targeting 4,500 points for the Euro Stoxx pan-European index. As we saw in the previous quarters, the negative reaction from the announcements for new containment measures is gradually becoming smaller and the significant discovery of drug treatment will help investors to consider the potentially small short-term impact.
Regarding the Greek listed companies, JP Morgan estimates that profitability in 2021 will increase by 21.9%, in 2022 will move to 17.5% and in 2023 to 7.1%. Compared to the international markets, it expects an increase in earnings per share (EPS) this year by 51.4%, while for 2022-2023 it estimates that it will move to 6.9% and 8.7%. For Europe, the increase this year is set at 59.3% while in 2022 it will move to 6.6% and in 2023 to 6.3%. For the US, the US bank expects a profitability increase of 49.4% this year and a slowdown to 7.9% in 2022, while in 2023 it places the rise of EPS at 9.9%.
Given the above, JP Morgan considers that the reward-risk profile for shares remains positive. Growth in China is in its final stages, with prospects for improvement in the future, while credit concerns in the country are expected to remain manageable, says JP Morgan. With regard to COVID and the Delta variant, it remains optimistic due to the significant gap between cases and hospitalizations, with significant new limitations being unlikely to be the case in both the US and Western Europe. The labor market, a key driver of the consumer, remains strong. From the current level of economic climate indicators. a positive surprise in relation to activity dynamics is more likely than a disappointment.
After a significant recovery in bond yields since August, the curve has flattened again, he notes, and this could be interpreted as the market moving towards a valuation of a central bank policy error. However, as he emphasizes, this trend is not expected to last. The Fed is starting tapering, but other major central banks will stick to their lenient policies, which will lead to sharper yield curves and real interest rates are likely to rise. In this context, the shares are likely to accept tapering without any disturbance and JP Morgan insists on its assessment of outperforming the circular shares and sectors, recommending long positions in Energy, Banks, Automotive and Mining.
Alongside gives the top picks from Europe which it estimates will be the biggest investment opportunities during the current fourth wave of the pandemic, which are the following 39: