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LIVE MARKETS-"Is Apple Really Worth The Entire FTSE 100?"

Mon, 14th Sep 2020 15:33

* COVID-19 vaccine hopes lift European stocks

* Dassault shares jump on Greek order

* Healthcare sector down on Trump's plans to reduce U.S. drug prices

* G4S shares surge 25% on 2.95 bln pound buyout offer
Welcome to the home for real-time coverage of European equity markets brought to
you by Reuters stocks reporters. You can share your thoughts with Joice Alves
(joice.alves@thomsonreuters.com) and Julien Ponthus
(julien.ponthus@thomsonreuters.com) in London and Danilo Masoni and Stefano
Rebaudo (stefano.rebaudo@thomsonreuters.com) in Milan.


One smart way to look into the dilemma of whether value is now a better
investment than growth is comparing Apple with the FTSE 100.

Citi has done the job:

* Apple and FTSE 100 both worth $2trn

* Apple trades on a PE of 29x compared to FTSE 100 on 14x

* Its dividend yield is 0.8% compared to FTSE 100 on 4.2%.

* Its growth is much higher - 2017-21 EPS growth for Apple is expected to be
compared to -2%

* Its DPS growth is expected to be 9% compared to 1% for FTSE 100

And to the crucial "Is Apple Really Worth The Entire FTSE 100?" question, it
answers: "Expensive valuations suggest scope for Apple to underperform the FTSE
100 as recent Tech froth unwinds. But a more wholesale switch out of Growth
investments like Apple towards Value investments like FTSE 100 requires higher
real rates. That moment still seems some way off."

(Danilo Masoni)



Value has been a popular call on the sell-side for a while, just like going
overweight on European equities.

But while there seems to be a powerful case for both, it's has not been
working out lately.

"The debate between tech and value applies to European equities versus U.S.
equities" according to Graham Secker, chief European equity strategist at Morgan

"Europe has been challenged for some time and investors are naturally
hesitant to come back", Secker says, noting "fairly weak momentum" for the
continent's stocks at the moment.

But Europe is value-heavy in comparison to tech-heavy U.S. markets and it
does seem that macro driving forces are on its side.

"We prefer value at the moment because the macro environment, mild
reflation, rising yields should...help a rotation", he said.

Among value stocks, European banks, which are down over 37% so far this year
could also see some light at the end of the 2020 tunnel.

"If the dividend restrictions are lifted for European banks in the first
quarter of next year, that could prove a powerful catalyst with improving macro,
a steeper yield and some M&A"

But again, again markets are momentum driven and value in financials has
been challenged so far.

One possible way to navigate through the value investment space is to
discriminate within the style.

"One distinction to make is between disrupted (banks-energy-autos) and
undisrupted value (for instance in the industrial space) which has

The rise in the euro isn't seen as much of headwind at the moment, Secker

"A strong euro can also encourage U.S. investors to engage with the region
more as they can make money on the currency. Also if growth is strong you can
live with a stronger currency -- we think next year European earnings will grow
around 30% so if for example 4-5% is knocked off because of the euro, it's not
a big concern for investors".

As you can see below, there's still a big gap between the two sides of the

(Julien Ponthus and Sujata Rao)



2020 was tough, full stop. So if you are in need of a positive reading, look
at what Barings Investment Institute thinks next year will look like.

Barings says COVID-19 is over or at least the world has learned to live
with the risks. "All this means that next year will represent a return to a
'normal' global economy that depends on standard measures of GDP growth,
unemployment and investment. These numbers will look good on paper as they
bounce off 2020 lows," Barings writes.

Yet not all is that optimistic (sorry!), as those numbers will "feel a lot
worse in practice as they blend the slow trajectory of the global economy over
the last decade with the lingering scars of the crisis itself".

This will of course make the next cycle very tricky for investors. Barings'
best advice?

Ignore the cycle and go for the companies that “can navigate the secular
trends that the pandemic may have accelerated.”

In practice:

- Technology, and especially artificial intelligence

- Companies that can benefit from rising concerns for climate change, which
will bring "new patterns of living, working and shopping that transform returns
on real estate"

(Joice Alves)



If you're not trying to exploit the tactical uncertainties of COVID-19, but
instead looking for a more strategic positioning on the stock market, this view
from Bernstein is for you.

Strategists at the U.S. money managers have set out a sector allocation for
investors with a 3-5 year investment horizon, suggesting the following

* Tech, Healthcare and growth Consumer Cyclicals: "Persistent low discount
and a greater persistence of superior growth means that long duration within the
equity market remains attractive."

* Consumer Staples: "From a cross-asset perspective this offers a
income stream. This is attractive now that fixed income is less 'risk free'.
Moreover, this sector has a good claim to offer exposure to positive real

(Danilo Masoni)



There's been quite a lot of head scratching throughout the COVID-19 crash
bounce back and the spectacular rise of big tech has mainly fuelled FOMO, rather
than bubble alarm bells.

But in its latest Quarterly Review, the BIS takes the view that "risky
assets rose further despite the subdued economic outlook, raising concerns about
a disconnection from economic prospects".

Moreover, looking into tech, the BIS warns that the market dynamics which
have lifted the stocks are the same which could drag it back down.

"Bets that the rally was set to continue led to heavy long positioning in
call options", the bank's analysts note, explaining how this triggered traders
"to hedge their positions by purchasing the underlying stock, which boosts its
price and validates the initial bets".

"As such self-fulfilling mechanisms also work in the downward direction,
they tend to be destabilising", BIS warns.

Perhaps a warning to remembers when another 'Nasdaq whale' shows up in the
tech ocean.

Here's a BIS chart looking into how stocks rebounded amid downgraded
earnings expectations and here's some reading:

BIS warns of gap opening between markets and COVID-19 reality

(Julien Ponthus and Marc Jones)



Nope, we are not talking about a Guns N' Roses song but about a potential UK
stimulus package, with the Bank of England expected to make it rain in November
showering the market with abundance of cash.

ING says it is looking for any clues this week on the matter.

"With November action from the Bank of England looking ever-more-likely,
we'll be watching closely to see if policymakers offer up any further clues on
which tools they're most likely to use."

The Dutch bank sees the bank likely opting for QE as "the preferred tool,
although negative rates can't be ruled out either over the coming months".

And the support will be much needed as unemployment is seen on the rise and
there’s a growing risk that the Brexit transition period will end in December
without a trade deal between the UK and the EU, ING says.

(Joice Alves)



Equities look a bit fragile these days on concerns about elevated stock
valuations and virus trajectories, but some analysts see investors turning more
positive pretty soon.

The main issue hitting stocks appetite at the moment, besides the still
inconclusive vaccine race, is the new U.S. stimulus package as the U.S. Senate
failed to pass a $300 billion rescue plan last week.

But, according to an UBS research note, the package is just delayed as
“talks are continuing, and both parties have a strong incentive to provide extra
help to the economy”.

Macro data will give a boost to the stock market as “the broad trend remains
positive,” despite U.S. initial claims pointing to some slowdown in the
employment recovery.

Globally, economic data has continued to beat forecasts, with the Citi
Surprise Index at 86—below an August peak of 116, but still well above the April
low of –80, it adds.

Last but not least, central banks are expected to continue to provide ample
liquidity, though the ECB didn’t take any further action last week and the Fed
will likely do the same in the next few days.

Bottom line UBS sees the pullback "as an opportunity to enter markets at
better levels.”

About Brexit, UBS is sticking to its main scenario that a deal between UK
and the European Union “will eventually be reached.”

(Stefano Rebaudo)



As hopes for a vaccine that will end the COVID-19 crisis are growing, so are
the expectations for value to make a comeback through some kind of rotation.

The idea is that cheap stocks just need the whole spectrum of the economy to
start moving up again to catch up with the coronavirus winners, among which of
course, big tech.

"The incoming availability of a successful anti-COVID 19 vaccine can offer
the catalyst needed for this rotation", Oddo strategist Sylvain Goyon write in a
note this morning in which he reiterates his call to tweak portfolios towards
cyclicals and value.

One has to note however that so far, value has been a clear laggard even if
cyclicals have managed to bounce back somewhat as you can see from Goyon's chart

(Julien Ponthus)



French fighter jet maker Dassault Aviation is clearly the star of the
morning trading, up 8% after Greece said its armed forces would purchase 18
Rafale jets.

There are no fireworks for AstraZeneca (+1) after it said its COVID-19
vaccine trial would resume. The sector is actually the worst performing in
Europe and that comes after Donald Trump signed an executive order to lower U.S.
drug prices.

Analysts estimate that more than 60% of global pharmaceuticals profits are
generated in the United States due to the high drug prices in the country.

But the travel and leisure sector does seem to be experiencing a big high on
vaccine hopes and is rising 1.2% with airlines stocks rising strongly notably.
BA owner ICAG is up 7.4% and EasyJet 2.8%.

On the other hand there's a nice read-across of Nvidia $40 billion agreement
to acquire Arm from SoftBank with STMicro up 2.5%, Dialog up 1.3% and ASM
international up 1.8%.

Still in M&A news, Credit Suisse is up 2.5% after new speculation on a
possible tie-up with UBS (+1.8%).

(Julien Ponthus)



Of course, news over the weekend that AstraZeneca had resumed clinical
trials of its COVID-19 vaccine is giving a major boost to morale and there's
more on that front with Pfizer and BioNTech proposing to expand their vaccine
trial to about 44,000 participants.

Switzerland's Molecular Partners also completed initial manufacturing runs
for an antiviral drug against COVID-19 but the recent surge in M&A activity is
saying a lot about corporate confidence in moving forward.

Nvidia Corp's $40 billion agreement to acquire Arm from SoftBank is a big
move for the industry many and groups will need to respond in some way.

The consolidation of European bourses is also underway with Euronext
confirming a non-binding offer to the London Stock Exchange Group to buy Borsa

Elsewhere, EP Global Commerce, an acquisition vehicle owned by Czech and
Slovak investors, is launching a takeover offer for shares in German wholesaler
Metro with the aim of raising its investment in the company above 30%.

In France, Veolia is seeking to address fears about its offer for its rival
Suez by pledging it will not lead to job losses.

There's also some action on the front with Polish commerce platform Allegro
planning to raise around $266.54 million in what is expected to be the biggest
debut on the Warsaw bourse for years.

(Julien Ponthus)



Here we go again: European futures are trading in the black after a positive
session in Asia where renewed hopes of a coronavirus vaccine have beefed up

It's not the first time nor will it be the last that investors cling to the
prospect of a vaccine clearing the way out of the pandemic and so much will
happen in the meantime.

Brexit, the U.S. election you name it!

It must be said that M&A is also playing its part in infusing some optimism
with notably Nvidia set to buy UK-based chip designer Arm from Japan's SoftBank
Group for as much as $40 billion.

Anyhow, London, Paris and Frankfurt are seen opening up but quite modestly,
between 0.2% and 0.4%, while Wall Street futures are much more bullish and
trading above 1%.

(Julien Ponthus)


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