Bad news in the short-term is an opportunity to buy European equities – Natixis

The declines in the equity market are due to various bad news (health, economic, on companies). But the outlook for European equities is good, given the economic policies conducted, the real long-term interest rates that will become negative for a long time, companies' determination to restore their profitability, and one day the announcement of a medical solution for COVID. Investors should, therefore, take advantage of declines in European equities to buy, economists at Natixis apprise.

Key quotes

“There will be (late 2020, first half of 2021?) a medical solution to the pandemic (curative treatment, vaccine).”

“Eurozone countries' fiscal policy is going to remain expansionary and the ECB will continue to keep long-term interest rates very low. This will prevent relapse in euro-zone activity, as after the subprime crisis caused by the excessively rapid return to a restrictive fiscal policy and the lack of ECB intervention to stabilise government bond yields.”

“As the ECB keeps nominal long-term interest rates low, once inflation has normalised there will be negative real long-term interest rates for a long time, which is positive for equities.”

“After the COVID crisis, euro-zone companies will be able to rapidly restore their profitability, using the same method as after the subprime crisis which is (unfortunately) the skewing of income distribution against employees.”