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War will redefine European markets, says Bank of America

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(Bloomberg) — The war in Ukraine will have far-reaching consequences for European markets, according to strategies by Bank of America Corp., which point to a broad universe of companies, from defense to energy, that will be affected by the new scenario. .

“It is one of those rare events in history that will change geopolitics, societies and markets,” BofA Strategies led by Eric Lopez, head of EMEA equity research, said in a note to clients. “The consequences of trying to accelerate change will range from the development of new industries, more investment in existing ones, and more investment in infrastructure and technologies.”

Among the trends that will redefine Europe, according to the strategies, are a significant increase in defense spending, promoting energy independence and the transition to renewable energy, as well as higher inflation, pressure on margins and increase in interest rates. interested.

Russia’s invasion of Ukraine triggered an unprecedented wave of sanctions that disrupted trade between the European Union and its main energy supplier, and more punitive measures will be discussed at a meeting between the bloc’s leaders and US President Joe Biden, this week in Brussels. The conflict has led to a rise in the prices of basic products, from food to base metals, exacerbating inflationary pressures just as developed economies on both sides of the Atlantic struggle to control rising prices.

Energy independence will be lost to Europe’s “number one strategic priority” as a result of the conflict, according to the BofA note, as natural gas prices will remain more than six times higher than their pre-pandemic levels in the predictable future. Companies such as Shell Plc, Equinor ASA and Aker Carbon Capture ASA will benefit from rising prices and accelerated investment in alternative gas imports and carbon capture infrastructure, BofA said.

Meanwhile, additional spending on renewable energy production and a more conducive regulatory environment for the transition from fossil fuels will drive companies from Vestas Wind Systems A/S to automakers making the transition to electric vehicles, such as Mercedes Benz. Group, according to BofA. An index of European renewable energy stocks has risen after the invasion on expectations of faster use of alternative energy sources.

Beyond energy, BofA’s strategies highlight defense stocks including Thales SA, Rheinmetall AG and Hensoldt AG as beneficiaries of an expected increase in military spending of up to 200 billion euros ($220 billion) a year. On the other hand, the higher costs end up in obstacles for industries that consume a lot of energy, such as the chemical and cement industry, according to the note.

“Inflation and interest rates could be higher for longer, and low-income consumers could be the biggest losers,” the strategies said, adding that the loss of consumer purchasing power will hit big retailers like Inditex. SA, Associated British Foods Plc and Zalando SE. As central banks step in to rein in rising prices with higher rates, lenders will benefit, while property companies will take a hit, they said.

In general, companies with a combined market capitalization of US$1.75 trillion in 13 sectors will be affected by seismic changes, according to BofA. “Europe will transition to be more independent and redefine many of its sectors and economic paradigms,” Dijon.

original note:

Bank of America strategists say war will redefine European markets

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