Analysts see growth potential for EU stocks in 2025-2026
European stocks may prove attractive to investors in 2025, as pessimism about them has almost peaked and an improvement in the geopolitical or economic situation could lead to a rally in securities, according to analysts surveyed by Reuters.
European stocks are currently trading at a discount of around 40% to US stocks, according to Deutsche Bank. This creates potential for investment flows and a recovery in European markets in 2025.
Details
European financial markets have suffered this year due to fears of US trade tariffs and political turmoil in France and Germany, but some investors are optimistic about the prospects for European stocks and are hunting for bargains on the downturn, Reuters reported, citing several analysts.
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Some investors believe that possible new bad news is already priced into assets, but an improvement in the geopolitical and economic situation could lead to a strong rally, Reuters writes.
What analysts are saying
“We believe that Europe could be a pleasant surprise for investors who do not have enough of it in their portfolios. We are close to reaching the peak of pessimism, and that is good news,” Reuters quoted Edmond de Rothschild's co-head of equities, Caroline Gauthier, as saying.
Context
Pessimistic, bearish sentiment in Europe has reached extreme levels, Citi strategists said in December. The investment bank suggested that European stocks could rise 10% by the end of 2025 and named the technology sector, luxury goods, and mining as the most attractive industries.
According to Deutsche Bank's calculations, the discount in the valuation of the pan-European Stoxx Europe 600 index compared to the main US index, the S&P 500, is currently around 40%.
The bank expects European companies' profits to grow by around 7-9% (high-single-digit): combined with low stock prices, this should ensure “moderate return prospects,” according to the bank. It named the financial and industrial sectors as the most preferable for investment.
The rapid rise in German company shares is one sign that traders already consider stock prices in Europe to be extremely low, Reuters notes. The German DAX index rose 4% in December: this month could be the best for the index since March.
Columbia Threadneedle's chief economist for Europe, Stephen Bell, said that European assets are cheap “for good reasons,” citing the region's economic difficulties. But Columbia is eyeing cheaper French stocks, which could rise if the country's budget situation eases
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