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There are many worried investors as European stocks hit record highs

(Bloomberg) – European stocks have hit record highs, vaccination rates are rising and central banks are pumping billions of dollars into the economy. But there are still a lot of things that could go wrong, with a resurgence of the coronavirus epidemic, another missed summer vacation season and elections keeping investors from sleeping at night. As the pandemic has transformed The stock market roller coaster of 2020, 2021 has started on a more optimistic note. The Stoxx Europe 600 index jumped 9.6% this year and hit a record high in April, the VStoxx Eurozone volatility index calmed to near pre-pandemic levels and, until ‘Now there has been little of a major results season. “We see 2021 as a year for equities as the recovery is about to turn into expansion,” said Cristina Rodriguez Iza, who oversees $ 42 billion as head of global multi-asset solutions at Santander Asset. Management Spain. “Anything that derails this recovery could be a risk to stocks.” Here’s what worries investors in European equities the most: No summer sun Normal returns to life are the biggest risks to the market recovery, fund managers say. The reopening is especially crucial for businesses and economies that depend on travel and tourism. The European Stoxx 600 Travel & Leisure Index has climbed 24% this year in hopes that vacations will be possible during the summer Any hiccups in the vaccine rollout could lead to a pullback for stocks such as the company. low cost airline EasyJet Plc and IAG SA, the owner of British Airways. The inoculation campaign is now picking up steam after a slow start in mainland Europe, but there has been a spike in coronavirus cases following the emergence of variants of the virus like those in India. “The greatest risk is that a mutation in the virus will appear resistant. vaccines because it would have devastating effects, ”said Enrique Marazuela, investment director at BBVA Private Banking, in comments via email. “The stock market rises are based on the thesis that the pandemic will be eradicated before the end of 2021.” Election fever Political obstacles closer to home cannot be ignored. In France, voters go to the polls for the regional elections in June, foreshadowing the presidential poll at the same time next year. Far-right leader Marine Le Pen has backed down in the face of unpopular ideas such as leaving the euro currency bloc, and her popularity continues to grow. Germany also holds a national election in September, with Greens multiplying in opinion polls, anything that upsets the established political order could at least cause short-term swings in equities, with the risk of a downturn. more sustained if governments are less market-friendly. “There is now an external chance that it is a coalition led by the Greens, which could lead the left parties to join the Greens in power,” said Nick Edwards, director of Guinness European Equity Income. Fund. the German vote. “Meanwhile, if Marine Le Pen wins in the French election next year, the markets would pull back, but with Frexit and Eurexit already off the table, probably only temporarily.” The independence vote is once again being finalized and the resignation of the Prime Minister of Northern Ireland risks triggering more instability around the implementation of Brexit. as online food delivery companies and payment companies. While earnings from meal kit maker HelloFresh SE, food delivery company Delivery Hero SE and online casino operator Evolution Gaming Group AB show they are still enjoying a growth spurt linked to pandemic, early cracks appear. Swedish mobile messaging company Sinch AB climbed almost 370% in 2020 and was the best-performing stock in Europe, but its shares fell 11% on Wednesday after earnings fell short of analysts’ expectations. to post impressive growth figures that will continue through June, marking the lowest in 2020 results, ”said Richard Scrope, director of the VT Tyndall Global Select Fund, via email. “In the future, growth will be more difficult and we believe that many companies have exceeded their potential. spend a frenzy. And with rising commodity prices, companies might see higher input costs as well. Investors are also worried that if the economy spins too fast, it could prompt central banks to cut support for the pandemic too soon. This is expected to be a main topic at the next European Central Bank meeting in June and is also a priority for the US Federal Reserve, especially if Treasury yields rise on inflation bets. support, ”said Grace Peters, head of investment strategy for EMEA at JP Morgan Private Bank, in comments sent via email. “Any indication of a return to austerity could introduce downside risks to growth, fears of a resurgence of political populism and a widening of the risk premium for European assets.” Here is the Taxman President Joe Biden’s tax hike proposals are at the heart of investors’ concerns. The Bank of America Corp. monthly survey in April revealed that tax increases are a growing concern for fund managers, cited as the greatest extreme risk by 15% of respondents. The main concern for equity investors is that Biden’s plan may cause preemptive sells, lower stock valuation and slow the rally in tech stocks. The Biden administration has unveiled plans to pay off its spending plan by $ 1.8 trillion dollars with higher taxes, focused on the richest. Americans. On the bright side There are certainly risks there. That being said, they are not the fund managers’ baseline scenario for European equities this year. Most see an economic recovery accelerating, which should benefit the region as it has a higher weight in cyclical sectors. European stocks are also cheaper than the United States, according to optimists. Hugh Gimber, global market strategist at JP Morgan Asset Management, said data on fund flows shows how often European stocks have been. neglected in recent years, but the elements are in place for “Vaccine deployment across the continent has stumbled over blocks, but we are probably past the point of maximum pessimism,” Gimber said via email. “Our confidence in a substantial economic reopening over the summer months is increasing.” For more articles like this, please visit us at bloomberg.com Subscribe now to stay ahead with the most trusted source of business information. © 2021 Bloomberg LP

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