Portfolio

Buy financial and energy shares and sell carmakers on rising euro, Morgan Stanley says

By Sean Farrell

Date: Wednesday 21 Feb 2018

Buy financial and energy shares and sell carmakers on rising euro, Morgan Stanley says

(ShareCast News) - The euro is likely rise to against the dollar in 2018 and 2019, making European financial and energy shares attractive and carmakers a standout sector for selling, according to Morgan Stanley.


The bank's foreign currency strategists forecast the euro to rise to $1.30 by December 2018 and $1.40 a year later, mainly due to dollar weakness.

The forecast rise is unlikely to have a big effect on Eurozone growth, inflation or monetary policy, Morgan Stanley's analysts said. But a stronger euro is unhelpful for the bank's positive stance on European shares.

A rising euro supports Morgan Stanley's overweight position on financial and energy shares and more cautious view on cyclicals and defensive stocks.

Within the cyclical bracket, carmakers are a particularly interesting 'sell' candidate, the analysts, led by Krupa Patel, said.

"The sector looks overbought, is traditionally one of the most sensitive to FX strength and is facing a combination of a slowdown in global car sales at the same time that raw materials and labour costs are rising," the analysts wrote.

The analysts also said weaker beneficiaries of a strong euro are "the most overbought theme in the market". They listed the following shares as underweight-rated from that group: Nokian, Valeo, Renault, BMW, Faurecia, Tod's, Eni, Hannover Re, Aurubis and Eramet.

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