European Equity Markets Commentary

The principal issues that have kept us busy over recent months will continue to be decisive in the rest of 2023. The European economy remains characterized by inflation, rising interest rates and uncertainties regarding the geopolitical situation. In the words of the European Central Bank President, Christine Lagarde: “We are now entering the second phase (of inflationary developments) in which rising wages play an important role in inflation”. These developments set the stage for the further trajectory of central bank rates over the coming months, but also show the cost situation emerging for many companies.

2023 – what else awaits us?

Consumer spending and strong labour markets have driven inflation. While companies could easily raise their prices, and thus pass increased costs on to customers, corporate profit margins remained high. However, the game is now changing. Although labour markets remain resilient, high prices are leading to lower consumption, and there is now little leeway for further price increases. And the appetite for higher wages is also affecting profit margins.

Another issue currently faced by many corporates is “destocking”. The disruption of value chains during the Covid pandemic led to large stocks of raw materials and semi-finished products being built up in order to ensure production could keep going. It is now necessary to reduce these stocks back to the normal level, impacting the suppliers of such materials. And this process also extends to consumers, as they too also hoarded goods during this period. The consumption of these stored goods, materials, and products is now taking place, resulting in lower incoming orders and sales.

Current data confirm this trend. The so-called PMI (purchasing managers’ index) indicates that, in some European countries, incoming orders from companies are declining, especially those from abroad. Economic sentiment is also declining in other areas, such as services. While it is certainly premature to speak of a crisis, the lack of momentum from other regions is clear.


MSCI Europe consensus EPS
MSCI Europe consensus EPS

Sources: Refinitiv/Datastream, AllianzGI Economics & Strategy. As of 27 April 2023. Past performance and forecasts do not predict future returns.


The above chart shows MSCI Europe expected earnings, and we can see the course of profit expectations over time. A slight increase in earnings per share was expected for 2023 at the end of last year, but this is now flattening out.

Most markets were benign during the first half of 2023, driven by low valuations, hopes of stable economic development, and the possibility of interest rates falling again. These hopes are not being borne out, and the situation will likely be more difficult over the coming months. Businesses will feel the effects of higher costs, wages, and interest rates; however, as long as labour market are not significantly affected, we expect normalization in 2024 and a return of rising profits. Energy prices will fall, and destocking will come to an end, while inflation will fall to more reasonable levels. Indeed, inflation will be with us for some time to come and, with it, higher interest rates. However, any easing of the geopolitical situation will also give the markets new potential.

  • Disclaimer
    Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security

    The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities. In mainland China, it is for Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations and is for information purpose only. This document does not constitute a public offer by virtue of Act Number 26.831 of the Argentine Republic and General Resolution No. 622/2013 of the NSC. This communication’s sole purpose is to inform and does not under any circumstance constitute promotion or publicity of Allianz Global Investors products and/or services in Colombia or to Colombian residents pursuant to part 4 of Decree 2555 of 2010. This communication does not in any way aim to directly or indirectly initiate the purchase of a product or the provision of a service offered by Allianz Global Investors. Via reception of his document, each resident in Colombia acknowledges and accepts to have contacted Allianz Global Investors via their own initiative and that the communication under no circumstances does not arise from any promotional or marketing activities carried out by Allianz Global Investors. Colombian residents accept that accessing any type of social network page of Allianz Global Investors is done under their own responsibility and initiative and are aware that they may access specific information on the products and services of Allianz Global Investors. This communication is strictly private and confidential and may not be reproduced, except for the case of explicit permission by Allianz Global Investors. This communication does not constitute a public offer of securities in Colombia pursuant to the public offer regulation set forth in Decree 2555 of 2010. This communication and the information provided herein should not be considered a solicitation or an offer by Allianz Global Investors or its affiliates to provide any financial products in Brazil, Panama, Peru, and Uruguay. In Australia, this material is presented by Allianz Global Investors Asia Pacific Limited (“AllianzGI AP”) and is intended for the use of investment consultants and other institutional /professional investors only, and is not directed to the public or individual retail investors. AllianzGI AP is not licensed to provide financial services to retail clients in Australia. AllianzGI AP is exempt from the requirement to hold an Australian Foreign Financial Service License under the Corporations Act 2001 (Cth) pursuant to ASIC Class Order (CO 03/1103) with respect to the provision of financial services to wholesale clients only. AllianzGI AP is licensed and regulated by Hong Kong Securities and Futures Commission under Hong Kong laws, which differ from Australian laws.

    This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG; Allianz Global Investors UK Limited, authorized and regulated by the Financial Conduct Authority; in HK, by Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; in Singapore, by Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; in Japan, by Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424], Member of Japan Investment Advisers Association, the Investment Trust Association, Japan and Type II Financial Instruments Firms Association; in Taiwan, by Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan; and in Indonesia, by PT. Allianz Global Investors Asset Management Indonesia licensed by Indonesia Financial Services Authority (OJK).

    3038485

Recent insights

Despite a rollercoaster few years in terms of global macroeconomic performance – and ongoing geopolitical uncertainty – one area which has proved particularly resilient is consumer spending.

Discover more

Navigating Rates

Until the macroeconomic outlook becomes clearer, the favourable supply-demand dynamic in fixed income is enabling investors to diversify portfolios and prepare for all eventualities in the next rate-cutting cycle – be it fast or slow.

Discover more

Embracing Disruption

Despite some setbacks in 2023, global additions to renewables witnessed a robust growth also driven by COP 28's pledge to triple renewable energy capacity.

Discover more

Allianz Global Investors

You are leaving this website and being re-directed to the below website. This does not imply any approval or endorsement of the information by Allianz Global Investors Asia Pacific Limited contained in the redirected website nor does Allianz Global Investors Asia Pacific Limited accept any responsibility or liability in connection with this hyperlink and the information contained herein. Please keep in mind that the redirected website may contain funds and strategies not authorized for offering to the public in your jurisdiction. Besides, please also take note on the redirected website’s terms and conditions, privacy and security policies, or other legal information. By clicking “Continue”, you confirm you acknowledge the details mentioned above and would like to continue accessing the redirected website. Please click “Stay here” if you have any concerns.