STOCKS NEWS EUROPE-Weak earnings undermine bull market-SocGen

Reuters - UK Focus

The search for higher returns and accommodative monetary policy continue to lend support to equities but weak corporate earnings undermine the bull run, strategists at Societe Generale (Paris: FR0000130809 - news) say.

Global equity markets have rebounded after a poor start to the year, with the MSCI World index rising 5.3 percent over the past 9 sessions.

However, Societe Generale say the optimism is mistaken for as long as there is no recovery in earnings.

"Enthusiasm for equities, in our view, continues to be driven by the lack of returns available elsewhere and an over-riding view that central banks will remain supportive of asset prices with very low interest rates," strategists at Societe Generale write in a note. "But equities still risk being undermined by terrible fundamentals."

Societe Generale warns of an earnings season that has largely been lackluster, with momentum pointing to flat or declining profits.

The bank highlights the MSCI Eurozone index, which has risen over 50 percent since ECB President Mario Draghi's "whatever it takes" pledge even though earnings are 10 percent lower and continue to decline.

Rising equity prices are all well and good, the bank says, "but ultimately profits need to improve as well."

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