Analysts at Citigroup suggest that robust earnings growth over the next year will provide support for European stock markets, with the most significant gains likely concentrated in the first half of 2027.
A strategy team led by Beata Manthey projects that the Europe Stoxx 600 index will rise to 640 points by year-end, a 3% increase, and climb further to 700 points by mid-2027, representing a cumulative 12-month gain of 13%.
Concurrently, driven by earnings, the FTSE 100 index is anticipated to rise by 15% to a target level of 11,800 points by the middle of 2027.
The bank has revised its earnings per share (EPS) growth forecast for European equities in 2026 upward from a prior estimate of 8% to 12%, a level that remains below the broader market consensus. The EPS growth forecast for FTSE 100 constituents stands at 22%.
Strategists believe that fiscal support will stimulate economic growth in the eurozone. Over the longer term, capital is also expected to gradually increase allocations to European stocks to achieve portfolio diversification.
Sector Allocation Views
- Overweight technology stocks to capture growth opportunities, selectively invest in cyclical sectors such as banking and basic materials, while also positioning in defensive sectors like healthcare and personal goods.
- Upgrade previously underperforming cyclical sectors like chemicals and media to a neutral rating; due to elevated valuations, downgrade the industrial sector to neutral.
- Downgrade the travel & leisure and financial services sectors to underweight due to weak earnings performance; maintain underweight ratings on the luxury goods, automotive, telecommunications, and utilities sectors.
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