LIVE MARKETS-The shifts behind U.S and Europe's divergent performance styles

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THE SHIFTS BEHIND U.S AND EUROPE'S DIVERGENT PERFORMANCE STYLES

The divergence in performance styles in the U.S. and Europe could not have been more stark this year according to Goldman Sachs equity strategists, who say some major shifts are behind the gap.

"Value (Banks, Insurance, Utilities, Telecoms) outperformed in Europe while growth (Tech/AI) outperformed in the US," they write, also flagging that U.S. markets have become more concentrated while concentration has faded in Europe to below average levels.

So what's behind the divergence?

Well. "Since the GFC, European stocks with the best profit growth have been either USD earners (benefiting from US economic growth, high drug pricing and USD appreciation) and/or China-exposed stocks (benefiting from strong China GDP)," they say.

But now those same factors have shifted, says GS, and in some cases have reversed completely.

"The dollar is falling, US growth is slowing, trade barriers have risen and the Trump administration is pushing for lower US drug prices."

China’s relationship with Europe has also pivoted sharply from a high-growth location to sell into to a huge competitor exporting deflation, for example in chemicals and autos.

"We don’t see these as near-term themes that will fade, but medium- to longer-term changes that Europe must grapple with."

They do not foresee a switch back into "growth" or what have been "quality" stocks in Europe despite the latter's de-rating.

"...while it is true that value has outperformed with a longer lens and versus the rise on yields, the outperformance hasn't been extreme."

(Lucy Raitano)

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