Societe Generale strategists expects a key pan-European index to fall 6.6percent in the next six months as earnings downgrades and slower-than-expectedprogress in tackling the euro zone crisis hit sentiment after a rally in thethird-quarter.
The strategists estimate the pan-European STOXX 600 index, whichcurrently trades at 269.92, will be at 252 at the end of March 2013.
The index jumped 6.9 percent in 3Q on the back of expectations of monetarystimulus in the United States and the euro zone, where the European Central Bankhas pledged to help countries that apply for a bailout.
"We believe that markets jumped the cyclical gun in 3Q, encouraged bycentral bank policies," Societe Generale strategists say in a note.
"We doubt these central bank measures will have any significant realeconomic effect and ... fear more downgrades to consensus earnings per shareestimates for 2013."
Analysts overall expect companies in the STOXX 600 index to report a 13.4percent increase in earnings next year, according to Thomson Reuters Starminedata.
Societe Generale strategists favour consumer staples and health care stocksfor their resilience to the economic cycle, while also finding financial sharesattractive after the ECB move reduced sovereign risk in the euro zone.
They are "underweight" industrial and consumer discretionary shares, whichdepend on economic growth, but warn they should be moving progressively intocyclical areas in anticipation of a European recovery further down the line,given the advanced state of the economic downturn in the region.
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Keywords: MARKETS EUROPE STOCKSNEWS