Welcome to Thoughts on the Market. I'm Graham Sekker, head of Morgan Stanley's European

and UK Equity Strategy team. Along with my colleagues bringing you a variety of perspectives,

I'll be talking about our positive view on European equities and share some key themes

for investors to watch for the second half of this year. It's Tuesday, May 18th at 2pm

in London. This week, we, along with the rest of the Morgan Stanley macro team, have

published our Midgia Outlook reports where we put our collective heads together to map out

the likely path for economies and markets over the next six to 12 months. As part of this

process, I took a step back to look at what we wrote in the same report from last May. Back

then, we titled our Outlook European Renaissance in the context of the EU Recovery Fund that had

just been proposed. At first glance, it's hard to argue that this new programme has generated

much enthusiasm for the region from global investors. Client conversations on the topic are few and

far between. European fund flows remain very low relative to elsewhere and global hedge funds

appear to have further reduced their exposure to the region over the last year. However,

in that context, it is perhaps even more impressive that Europe has actually been the best

forming region across global equities in dollar terms since the initial proposal was announced

last May. In my last podcast, I laid out a number of reasons why we think Europe can outperform

global equity markets this year. If anything, our conviction levels have risen further since then.

The region's vaccination programme has accelerated. We have raised our 2021 earnings growth

forecast from 30% to 40%, and our bond strategist now forecasts German bullials to reach 0%

in 2022. This last point is important as over the last five years, European equities have exhibited

the highest positive correlation to higher bond yields and rising inflation trends more generally.

i.e., Europe tends to outperform other regions when these indicators are going up,

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