Amundi's Wosol: Covid stocks still trading at 'significantly low' valuations

Covid-related stocks underpriced

The head of the largest European value fund in the world believes the European value rotation has further to go as the threat of further lockdowns and new variants keeps Covid-related stocks underpriced.

Andreas Wosol, Amundi's head of value who manages around €5bn in European equity value strategies, told Investment Week both Covid-related stocks and cyclicals are trading below pre-pandemic levels, creating opportunities for investors.

"People are talking about a fourth lockdown, another wave of the Delta variant coming into play this autumn or winter so these stocks are still not fully back to their pre-Covid situation, making them an area in the market where you might expect recovery potential," he said.

Wosol sees a lot of opportunities in the more consumer-focused areas of the market, including the automotive industry, media, and entertainment, as well as cyclical consumer areas, such as the retail that are trading "significantly low". 

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"They are trading below their pre-crisis levels and I think these are the stocks that will drive the value rebound," he added.

Wosol expects a rally in multi-year value as European value names affected by the Covid-19 crisis move through a three-stage recovery.

Initiated in April based on a cheap quality cyclical stock rebound, the head of value at Amundi said the value rotation in Europe has "accelerated", favouring deep value names - the segment most impacted by the Covid- 19 crisis - in early November, after the announcement of the development of an effective vaccine.

"With this small recovery we are still at the lowest valuation point in value. We have a multi-year value rally opportunity in the foreseeable future," Wosol said.

Since the beginning of this year, he sees European stocks in the third stage of the recovery, led by financials and banks, supported by higher rates and inflation expectations. 

Financials are still under pressure from unfavourable yields and the ongoing regulatory challenge to meet capital requirements, but Wosol is optimistic. 

"There are signs that both elements are turning more positive to a certain extent and banks will contribute significantly to the value rally."

The Amundi European Equity Value - A EUR is up 17.3% year-to-date compared with the 14.5% rise of its MSCI Europe Value benchmark. 

Its biggest exposure is to financials, at 25.1%.