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Europe has been hit by a “weak stagnation” weighing on markets, but several sectors and stocks stand out as strong performers for UBS this year as growth stabilizes and inflation slows. The Swiss investment bank expects European growth to hold steady at 0.6% this year, a modest forecast compared to the 1.2% growth rate set by the International Monetary Fund. UBS analysts led by Jerry Fowler said in a Jan. 19 note: “Our macro outlook for Europe is weak and stagnant, with European stocks slightly lower, but with further pragmatic divergence between sectors and stocks. It will last for years,” he wrote. They expect the benchmark Stoxx Europe 600 to trade between 420 and 520 this year, with “popular sectors” including retail, banking, real estate, mining, software, semiconductors and media. For reference, the index is trading around 472.86. Analysts said, “We believe the factors for strong performance in 2024 will be domestic (SMEs), quality and growth,” with slower growth and lower yields should reduce headwinds for growth stocks’ valuations. he added. The “well-positioned, high-quality domestic growth companies” that UBS has rated Buy include Spanish clothing company Industria de Diseno Textile, British bakery chain Greggs and online real estate platform Lite. Includes moves. So is French construction player Vinci. Analysts at the bank said: “We prefer domestic exposure as European growth is already slowing but is expected to stabilize in contrast to the US and China where growth is expected to slow.” He explained his reasons for preferring both companies. The investment bank also named top stocks rated Buy with “well-tested tactical equity signals based on an alpha model covering macro regime, earnings, valuation and sentiment.” Here are 10 of them. 2023 will be a strong year for software, and UBS is bullish on the sector’s outlook for 2024, citing Gartner’s forecast that IT spending will increase by 8% this year, up from 3.5% in 2023. The firm has stakes in SAP, Infineon Holdings, and Capgemini with a buy rating on ASML Holdings, offering potential returns of 22%, 17%, 40%, and 10%, respectively. —CNBC’s Michael Bloom contributed to this report.
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