(Reuters) – BlackRock Investment Institute upgraded European equities to “neutral” from “underweight” on Monday, supported by the potential de-escalation in geo-political conflicts, reduction in energy prices and monetary policy easing.
European stocks have had a strong start this year, with the benchmark STOXX 600 index gaining 8.82% so far and outperforming its U.S. counterpart, the S&P 500 index, which has risen only 2%.
Last month, Deutsche Bank and Citigroup turned bullish on European equities as lower interest rates, hopes of a strong corporate earnings season and an improving political outlook are expected to bolster sentiment in 2025.
“We see room for more European Central Bank rate cuts, supporting an earnings recovery. Rising defense spending, as well as potential fiscal loosening and de-escalation in the Ukraine war are other positives,” BlackRock said in a note.
Sluggish economic growth and falling inflation levels could offer more room for the European central bank to cut interest rates, that could boost European equity markets.
“Europe’s stocks needed a catalyst to turn around poor sentiment. We now see several that – if they materialize – could boost cheap valuations,” BlackRock added.
German election results could offer space for likely fiscal loosening, while a potential end to the Russia-Ukraine war could also favor European equities, BlackRock added.
However, BlackRock cautioned Europe still faces multiple structural issues, from lagging competitiveness to potential U.S. tariffs – “justifying some of Europe’s hefty valuation discount”.
(Reporting by Siddarth S in Bengaluru; Editing by Krishna Chandra Eluri)
