Europeans haven’t felt this good about spending in 16 years.
That bodes well for companies focused on shoppers. The MSCI Europe Consumer Discretionary Index, which has typically tracked improvements in sentiment, has so far lagged gains in the broader regional measure this year. That may change, with the euro-area consumer confidence in June surging to its highest level since early 2001.
“There is a positive correlation between the consumer confidence index and the consumer discretionary sector,” said Daniel Morris, London-based senior investment strategist at BNP Paribas Asset Management. “As long as the index continues to rise you would expect to see ongoing gains.”
The June reading of consumer confidence in the euro area beat even the most optimistic of the 32 forecasts in a survey by Bloomberg, while in France it surged to the highest in a decade. Euro-area economic confidence is also at a 10-year high. While MSCI’s consumer discretionary measure is reversing last year’s decline, its advance of less than 3% is lagging the almost 5% increase in the MSCI Europe Index, signalling more room for gains.
Analysts at Societe Generale see such spending boosting the region’s economic growth, and recommend focusing on companies selling discretionary items rather than staples. The bank’s basket of 17 such stocks has outperformed the benchmark Stoxx Europe 600 Index this year, according to the June 23 note.
They include Spanish supermarket chain Distribuidora Internacional de Alimentacion SA, French hotel chain Accor SA and Air France-KLM, all of which depend on the euro zone for a majority of their sales. DIA and Accor have climbed about 17% each, while Air France shares have more than doubled in 2017.
“Post the financial and euro-area crises, consumers have been delaying some of their discretionary spending,” Societe Generale equity strategists including Kevin Redureau wrote in the note. “SG’s economics team expects consumption to be the main contributor to euro area GDP growth in the coming years.”