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EUROPE' EARNINGS GROWTH PROBLEM

European equities' outperformance from the start of the year has fizzled out, and State Street's head of equity research Marija Veitmane says earnings are a major reason.

"Investors should not be rotating into European stocks because we don't have earnings (growth)," Veitmane says.

Second quarter earnings season is pretty much over, and European companies are set to report 4.6% growth in second-quarter earnings, according to LSEG I/B/E/S data compared to almost 13% for the S&P 500.

While this is above some forecasts, Veitmane says this is more a result of expectations being lowered ahead of results due to tariff unknowns.

"We had a long standing underweight in European stocks and for us the key reason was earnings," she says.

"This position was vindicated in Q2 and the key turning point was ... (most) companies pulling the future earnings guidance except for one sector: U.S. tech."

This is a trend she expects to hold due to strong earnings despite recent sell-offs and lofty valuations.

She says investors are likely to flock to an over-subscribed sector with known growth certainty over cheaper sectors facing fundamental issues like healthcare.

"In a world where we worry about concentration, we worry about crowding, we worry about bubbles, the big investors are adding to positions (in tech)."

(Twesha Dikshit)

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