(News Bulletin 247) – The Swiss bank believes that the Stoxx Europe 600 index should still correct significantly by the end of the year, a decline that will necessarily occur via the decline of certain large caps. UBS is thinking of LVMH, Airbus or Dassault Systèmes.

The month of August has so far been torrid for the equity markets, which fell sharply, after a good month of July. The CAC 40 drops around 250 points or 3.3%, the pan-European Stoxx Europe 600 index loses around 17 points or 3.6%

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This breathing is likely to continue according to the strategists of the Swiss bank UBS. The latter again estimated, in a recent note, that the Stoxx Europe 600 could end the year 2023 around 410 points, which would constitute a drop of around 9.5% by then.

“Today, the “slowdown” regime is probably gaining strength, with new orders (from companies, editor’s note) weakening strongly and in general”, underlines the Swiss bank. “After a rather lackluster earnings season, we believe the second half will be marked by further earnings weakness,” she continued.

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The very present Luxury

This forecast on the pan-European index necessarily has as its corollary the decline of major European groups. Indeed, the Stoxx Europe 600 index, which includes the most important European companies in terms of capitalization, cannot decline if “megacaps” do not follow the movement.

What might these values ​​be? UBS ventured to draw up a potential list, a perilous exercise. The bank selects twenty groups from the 150 largest European capitalisations. To arrive at a narrow list, UBS applied several criteria, taking companies that have suffered lower analyst earnings forecasts and exhibit greater volatility than the Stoxx Europe 600 (with at least 10 percentage points higher than the Stoxx Europe 600). more than the European index).

Last parameter retained: the bank has not taken on a group whose share price is already evolving at levels that are too low. To do this, it did not select a company trading at less than 10 times expected earnings over twelve months. UBS explains that this last criterion has mainly led to the elimination of companies in the banking and energy sectors.

UBS believes that this methodology can make it possible to find companies that are in a negative momentum, and which risk seeing the markets lower their expectations even further. But therefore excluding groups whose prices have already depreciated, and which are therefore less likely to see their shares fall.

Result: the bank notes that the values ​​retained sometimes belong to sectors which have behaved very well since the beginning of the year, such as luxury and semiconductors. Indeed the list (even below its entirety in box) includes the Munich Infineon Technologies and the Dutch ASML for semiconductors.

Airbus and Dassault Systèmes in the list

For luxury, two or even three groups listed in Paris are present. These are LVMH, whose slowing growth in the United States was penalized by the market during the earnings season, and Kering, which is posting lower growth than other big luxury names due to the transition designer at Gucci. EssilorLuxottica, sometimes considered a luxury group by design offices, completes the trio. The parent company of Ray-Ban had been punished by the market during the publication of its half-year results, also due to a slowdown in North America. Another luxury company present in this selection: the Swiss Richemont, parent company of jeweler Cartier, which had published growth below expectations in mid-July.

Apart from luxury, two other values ​​listed in Paris are found in these twenty actions. It is first of Airbus, which had also seen its action decline after the publication of its half-year results, despite a market then in sharp rise. If the results strictly speaking had not really disappointed, the group had been sanctioned because of a technical blunder at one of its engine suppliers, Pratt and Whitney, which risks having an indirect impact on the production of Airbus in 2024, as well as by abandoning its intermediate production target for the A320 neo. Last French group concerned, Dassault Systèmes, which had lost nearly 5% after the publication of its half-year accounts, due to disappointing growth in “life sciences”, one of its new business engines. these last years.

Engie and Vinci ready to resist?

Among the other European stocks, we note the presence of the German conglomerate Siemens, the chemical companies BASF and Sika and the British insurer Prudential.

Mirroring these 20 groups most likely to contribute to a decline in European markets, UBS has also selected a list of 20 companies which, on the contrary, should show resilience in a bear market. The bank just took the opposite criteria from those used for the previous list on volatility and earnings expectations.

Defensive stocks appear this time, with the pharmaceutical groups AstraZeneca and Novartis as well as the distribution group Tesco or even the luxury car manufacturer Ferrari or even the British defense company BAE Systems.

As for French stocks, three are selected this time: the infrastructure and electrical equipment specialist Legrand, the construction and concessions group Vinci and the energy company Engie (energy is also well represented in this second list , with Enel, Iberdrola, or even E.ON).

Obviously, the exercise carried out by UBS is complicated and it seems difficult or even impossible for the 40 stocks (on the two lists) to behave as the bank anticipates over the last five months. But the Swiss institution has the merit of trying to identify values.

  • The 20 values ​​likely to fall
  • ASML (semiconductors)
  • LVMH (luxury)
  • Siemens (industry)
  • Airbus (aeronautics)
  • Richemont Financial Company (luxury)
  • Prosus (online consumption)
  • EssilorLuxottica (optics, glasses)
  • DHL Group (transportation, logistics)
  • Infineon (semiconductors)
  • Basf (chemistry)
  • Sika (chemistry)
  • Lonza (chemical-pharmaceutical)
  • Kering (luxury)
  • Alcon (pharmacy)
  • Dassault Systemes (software)
  • DSV A/S (transport, logistics)
  • Prudential (insurance)
  • Experian (customer relationship management tools)
  • Amadeus (product reservation systems for travel)

Givaudan (design of flavors and fragrances)

  • The 20 values ​​likely to resist
  • Astrazeneca (pharmacy)
  • Novartis (pharmacy)
  • Unilever (hygiene products, consumer goods)
  • Iberdrola (energy)
  • RELX (media, communication)
  • ABB (energy and automation technologies)
  • Vinci (construction, concessions)
  • Enel (energy)
  • Munich Re (reinsurance)
  • Ferrari (luxury car)
  • BAE Systems (defense)
  • Holcim (cement)
  • Deutsche Boerse (stock exchange operator)
  • Wolters Kluwer (information, software and services in law and taxation)
  • Engie (energy)
  • E.ON (energy)
  • Legrand (electrical equipment)
  • Tesco (retail)
  • SSE PLC (energy)

DNB Bank (bank)