LONDON, April 7 Two big brokers have given a
thumbs up to the European oil & gas sector on attractive
The sector, the second-worst performers in the region so far
this year, as stocks were hit by weakness in crude oil prices
and have failed to keep up with their subsequent recovery.
Oil and gas stocks are down 1.3 percent, compared
with a 5.2 percent gain for the broader market.
The energy sector, which last year jumped almost 23 percent,
a gain second to only mining, was expected to continue
its outperformance as one of the beneficiaries of a global
reflation trade, which gathered pace after Donald Trump won the
However, Trump's failure early on to deliver on his
healthcare bill has cast doubts on his ability to make good on
promises for tax cuts and infrastructure spending, which had
partly spurred enthusiasm for banking, mining and energy stocks.
Now, the energy sector's recent underperformance has been
seen as an attractive opportunity by both Morgan Stanley, who
remain "overweight" the sector, and Deutsche Bank, who upgraded
their view on the sector to a "tactical overweight" on Friday.
Morgan Stanley's strategy team said that the energy sector's
valuations remain close to 30-years low and is now cheap
relative to the market, other commodities and U.S. peers, with
banks the only sector which is cheaper.
Weakness in the underlying oil price throughout March on
worries about oversupply dented appetite for shares of oil
producers. Oil prices have bounced 11 percent from their March
lows, twice the gain of the oil-related stocks.
"The energy sector has only recently started to catch up
with the move in the oil price – and should benefit if USD
weakness leads to further upside for oil," strategists at
Deutsche Bank said, adding that they expected energy to
outperform over the coming month.
The price of oil has historically moved inversely to the
U.S. dollar on the view that a softer dollar makes the
underlying commodity cheaper for holders of foreign currency.
(Reporting by Kit Rees, Editing by Vikram Subhedar)