Barclays Feels Strong Recovery Vibe From Geneva.
Morgan Stanley’s Not So Sure Though.
As the 2015 Geneva Car Show recedes into memory, some investors are feeling a bit more bullish than others about sales prospects in Europe.
“The key message (coming out of Geneva) was a relatively buoyant one regarding Europe volumes,” said Barclays Equity Research analyst Kristina Church.
This perception isn’t shared by Morgan Stanley.
Before the show, consensus pointed to an anaemic European sales gain of between two and four per cent. Last year Western European sales grew 4.8 per cent to 12.1 million.
Church now sees much better outcomes.
“Our own multi-regression models by country point to volumes growing 5.5 per cent in 2015 – that’s roughly double what most market observers are predicting. This suggest growth is accelerating even before QE (Quantitative easing) begins,” Church said.
Europe’s economy is still failing to show strength after the long recession and unemployment remains high. The Organisation for Economic Cooperation and Development expects eurozone growth of just 1.4% in 2015. That’s an improvement over the 0.7% for 2014, but it’s well below what Europe should be achieving.
Morgan Stanley doesn’t expect this month’s QE by the European Central bank to have much of an impact, not least because major auto manufacturers are already financing companies at well below one per cent. Morgan Stanley was below consensus, but has raised its forecast a bit for European car sales to a 2.6 per cent gain in 2015.
Barclays’ Church pointed out that since last October, Europe auto stocks have been the darling of the market, gaining 51 per cent compared with the overall stock market’s gain of 21 per cent.
“Fears about the crumbling emerging markets and a slowdown in China have largely been forgotten thanks to the prospect of a European recovery premised on the prospect of QE,” Church said.
Morgan Stanley is much more wary though, at least on the stock market, where it says sentiment has moved far ahead of reality.
“In reality we, we still see little potential for record low interest rates to impact European consumer demand much from here. We believe investors have sharply overestimated the potential consensus (for increased profits).This suggests the risk-reward for European autos has deteriorated sharply,” said Morgan Stanley analyst Harald Hendrikse.