European stocks seal fourth straight month of gainsكاس

European stocks posted gains for the fourth consecutive month, as confidence in the region’s economic recovery increases and the vaccination program accelerates.

MSCI’s broad measure of stocks across Europe are up nearly 4 percent since the end of April, bringing its year-to-date gains to 12 percent in US dollars. The stock exchanges in Frankfurt, Paris, Madrid, Milan and London rose this month.

While the EU vaccination program lags significantly behind other regions, efforts by major countries to speed up rollout have boosted traders’ confidence. At the same time, economists expect a strong economic rally this year.

In a sign of an improving outlook, the European Commission’s latest Economic Sentiment Index survey released on Friday showed confidence across the eurozone in May was “significantly above its long-term average and pre-pandemic level”.

Daniela Ordonez, an economist at Oxford Economics, said the ESI data “confirmed that the eurozone economy is rapidly recovering from lockdowns with increased vaccinations as the summer season approaches”.

Stocks in Spain and Italy – two countries that were hit hard during the height of the coronavirus crisis – have done particularly well this month. MSCI’s Spain and Italy indices rose about 6 percent for the month of May in dollar terms. Yields have seen an improvement from the euro’s strength against the dollar this month.

Investors and economists have a similarly optimistic view of the United Kingdom, where the rollout of coronavirus vaccines has been faster than in continental Europe, and the government has lifted many social restrictions.

“We continue to believe that UK stocks in general offer good value for global investors,” said Sharon Bell, European strategist at Goldman Sachs. “Since the beginning of this year, we have seen the strongest inflows from foreign investors into UK stocks since at least 2016.”

Britain’s MSCI index rose 3.4 percent in May, a rally helped by a strong rally in the British pound against the US dollar.

Investors said stocks in the UK and continental Europe also looked less expensive than those on Wall Street, which made these markets look more attractive.

The MSCI European stock index is trading at about 17 times the expected earnings over the next year, according to Goldman Sachs. That’s higher than the average over the past 10 years, but much less expensive than US stocks that trade at nearly 23 times expected earnings.

Forward P/E bar chart showing that European markets are trading at lower cost valuations than the US

Bank of America said in a note last week that it remained “positive on European equities” even after strong gains this month. The bank suggested clients take “excessive” positions in stocks that tend to correlate with the performance of the economy, such as banks and sellers of luxury goods, as the region’s economic recovery accelerates.

Trading on Monday was quiet, with both the UK and US closed for public holidays.

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