Citigroup says this time it's different for Europe profit growth

[LONDON] Equity strategists are yet again predicting that this will finally be the year European profits deliver.

This time, it's Citigroup Inc's Jonathan Stubbs forecasting the region's earnings will jump at least 10 per cent to end a three-year dry spell. His bullishness on Europe is reminiscent of early 2015 and 2016, when strategists and investors doubled down on the region's stocks, drawn by the promise that monetary stimulus and a weak currency would be sufficient to prop up corporate profits. But so far, no dice.

"Despite political headlines, there are signs of macro improvement in Europe and across the world," Citigroup's equity strategists led by London-based Stubbs, wrote in a note on Monday.

"We think this could contribute to broader sentiment change across the investment community."

Investors gave up on European stocks in 2016, on concerns ranging from Brexit to stability in the banking system, notwithstanding cheap valuations. But Citigroup says this time it's different.

Unlike previous years, economists are increasing their growth forecasts for the region just as stock analysts raise their profit estimates. Its stocks are still relatively underowned, with EPFR Global data showing investors withdrew more than US$100 billion from European funds in 2016.

Only a contraction in global manufacturing and oil sinking to US$20 could hamper profit growth in Europe this year, Mr Stubbs wrote in the note. Citigroup's strategists also bumped up their year-end target for the Stoxx Europe 600 Index to 410 from 380. That implies a 13 per cent gain in 2017, which would make it the biggest annual advance since 2013 - when earnings last grew.

BLOOMBERG