Consumer-focused firms weather sharp declines as inflation sparks investor jitters
Shares in European consumer-focused firms have taken a battering in the last quarter as soaring inflation and low growth have caused investors to shun the stocks.
Consumer-cyclicals firms, which span sectors including housing, entertainment, and retail, have weathered a sharp average share price plunge of around 16 per cent as investor jitters grow over consumer spending power, according to data from investment analysis firm Morningstar.
Morningstar found that wider share price declines over the first quarter of this year have pared back wider 12-month gains to little over 15 per cent, down from almost 30 per cent last quarter.
Analysts said consumer cyclicals had plunged well beyond the wider share index.
“The Morningstar Europe Consumer Cyclicals Index has significantly lagged the Morningstar Europe Index since the start of the year, as concerns about inflation and its dampening effect on consumer discretionary spending, amplified by the Russia/Ukraine war, weighed on the sector,” analysts said.
“Further, internet retail came under pressure alongside technology shares, as concerns about rising interest rates made future earnings of these high-growth firms less attractive to investors.”
Energy was the only sector to experience price gains over the quarter, up more than 11 per cent, as investors bet on higher energy prices benefiting producers.
But analysts at Morningstar said turbulence in the markets presented opportunities to investors with firms now significantly undervalued.
“Broad-based declines over the quarter have thrown up opportunities across the board, with five star stocks flashing up in every single sector, a situation we have not encountered since our first Europe outlook report in 2021,” analysts said.
“While investors may be understandably nervous in these uncertain economic times, one recurring stock theme in this second-quarter 2022 report is around business model resilience, frequently underpinned by narrow and wide moat ratings.”
It comes as flows into equity funds rebounded in the first week of April after a month of heavy outflows through March as investors scrambled for safer havens to put their cash.
European equity funds received a net $4.84bn in the week to 6th April, while U.S. and Asian equity funds faced outflows worth $930m and $150m, respectively, data from Refinitiv Lipper showed.