On May 20 local time, Bank of America released its latest research report, warning that European equities may be approaching a "price collapse" range, with the STOXX 600 index projected to have a downside potential of approximately 15%.
Bank of America's European equity strategy team pointed out that even if the conflict in Iran concludes swiftly, Brent crude oil prices could remain around $100 per barrel in the second and third quarters of this year, while European natural gas prices might surge above €80 per megawatt-hour. This is expected to result in a quarterly annualized decline of about 1% in the eurozone's final private domestic demand, with the eurozone Purchasing Managers' Index potentially dropping by 2 to 3 percentage points to around 45.
Furthermore, Bank of America emphasized that the European Central Bank is anticipated to raise interest rates by 50 basis points during the summer, further intensifying pressure on economic growth. The bank has maintained an underweight rating on European equities since early May, deeming current market pricing overly optimistic.
Bank of America's May survey of fund managers revealed that a net 4% of respondents indicated an underweight stance on European equities, compared to a net 35% overweight position before the outbreak of the conflict. Nearly one-third of European fund managers expect economic growth in Europe to slow in the coming months, marking the highest proportion since October 2024.
Analysts believe that Europe's high dependence on energy imports makes it particularly vulnerable amid geopolitical conflicts. Even if a peace agreement is reached, structural damage on the supply side will require time to repair.
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