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Sector performance shows Europe is back on track—which is good news for you

Some of Europe's most cyclical sectors are putting the pandemic well behind them. For example, the stock prices of retailers and automotive firms have made a resounding recovery, with their bonds bouncing back as evidenced by their tighter yields. The gaming industry, which covers economically sensitive resorts and casinos as well as more technically defensive digital platforms and technologies, is also back on form.

It's been a long—or longer—time coming. The euro zone has lagged the US, being slow out of the blocks with its vaccine rollout. Successive lockdowns to curb COVID-19 impeded economies and inevitably hit operational and financial performance, but the region has turned a corner more recently. What does this mean for other sectors and what should they be watching out for in the months to come?

1/ First and foremost, a healthy market is good for every business

The purchasing managers' index (PMI) in the euro area reached an all-time high in July and remained elevated in August, indicating strong growth across the bloc. Vaccine progress has been a big help—while the UK approved its first COVID-19 vaccine on 2 December 2020, nearly three weeks before the EU, the continent has gained critical mass.

Germany, the UK, France, Turkey and Italy have all administered in excess of 70 million vaccines. Questions remain over their effectiveness against the Delta variant and other mutations, but the mitigation of hospitalisations and deaths has supported a reopening of economies.

Record monetary and fiscal stimulus is also supporting markets, with European stocks hitting record highs in early August. The relative lag in Europe's recovery has made it an attractive bet for investors. By contrast, US stocks benefitted from an earlier recovery but look comparatively overpriced.

2/ Struggling sectors are gaining ground, which is a positive sign for everyone

Against this backdrop, previously shunned sectors have come back in favour. A sample of nine European gaming companies shows a mean share price gain of 194% since the stock market nadir at the end of March last year.

Over that same period, a basket of seven automotive companies has gained 97%, while across six retailers the average appreciation has been 65%. Only one company in each of these three sector groupings has seen its share price fall: Kongsberg Automotive, Codere (gaming) and Rallye (retail).

The fortunes of companies in these sectors have undoubtedly been supported by the recent rebound in consumption. In its summer forecast, the EU predicted that GDP will grow by 4.8% across the eurozone and the wider bloc, with 4.5% anticipated in 2022. This should provide ample runway for further gains in pandemic-prone sectors as Europe contains the health crisis.