European earnings are expected to rise this year as growth improves, the euro weakens and commodity prices strengthen.
Bank of America Merrill Lynch on Friday raised its forecast for 2017 European earnings by 11 percent.
“As we enter 2017, growth appears to be accelerating, with the ISM (manufacturing data) surging in January and European PMIs hitting a five year and a half high,” BoA said in a research note Friday.
Data released Wednesday showed U.S. December ISM services and non-manufacturing beating forecasts. Also this week, the euro zone PMI figures came in strongly. On Friday, retail sale figures and economic sentiment were also supportive of an upbeat European economy.
“Add in a weaker euro and our strategists’ bullishness on commodity prices, and European earnings prospects look good,” the bank added.
For next year, BoA is forecasting an 8 percent increase in earnings. If both, the 2017 and 2018 figures materialize, “2017-18 would be the best years for European earnings since the global finance crisis,” the bank said.
In terms of particular sectors to watch out for in 2017, BoA suggests a “balanced” portfolio with banks, autos, pharmaceuticals and utilities stocks.
“Since our last note, Banks have continued to perform well but they have been joined by the likes of Autos, Telecom, Media and Oil & Gas, whereas Basic Resources has been one of the worst-performing sectors over that time period. With the upside to our fixed income forecasts for 2017 still relatively modest and the equity market having already pocketed a good chunk of the upside for the current year, our inclination is that this more balanced trend will continue,” the BoA said.
Looking at the U.K. market as it extricates itself from the European Union , Stewart Licudi, head of financial sponsors at William Blair, told CNBC on Friday that he expects “a lot of activity” in technology and healthcare.
“The competition has become even fiercer, because if you have a good quality business with good profits then that’s something that private equity owners still want to own, once they have factored in what they think might happen over the next three to four years in terms of Brexit and their business performance,” he said.