As signs of easing geopolitical tensions in the Middle East emerge, two senior strategists from JPMorgan Asset Management have this week independently voiced optimism for European equities. They argue that the significant pullback in oil prices is creating a rare entry opportunity for the long-underestimated European market.
JPMorgan Asset Management's Chief Market Strategist for Europe, the Middle East and Africa, Karen Ward, stated in an interview in Zurich on Wednesday, "I am very bullish on Europe, and precisely because almost no one agrees with me, that makes me even more convinced I am right." In her view, the deeply ingrained investor aversion to European stocks is precisely what creates a buying opportunity. As the situation with Iran gradually calms and oil prices retreat further, "the story for Europe will truly be unleashed."
This geopolitical shift is already showing tangible progress. On Thursday, as the U.S. President signed an interim ceasefire agreement with Iran and pushed for the reopening of the Strait of Hormuz, crude oil prices neared the lows seen at the initial outbreak of the conflict. JPMorgan global market strategist Hugh Gimber also emphasized that the U.S.-Iran interim peace deal is cooling the market, "It feels like we are at an inflection point," with selective investment opportunities emerging beneath the calm surface of the indices.
Where to Allocate Capital in Europe
Regarding allocation direction, the two strategists provided similar answers. Ward pointed out that as the artificial intelligence (AI) sector has already seen significant gains in U.S. and Asian markets, and global markets overall are no longer cheap, investors are facing two fundamental questions: "Where is there further upside? And how to diversify risk away from overly concentrated tech stocks? Europe is the answer to both questions."
She anticipates a broad-based benchmark re-rating for the European market, particularly favoring sectors that can participate in the "global industrial upswing," specifically including financials, industrials, and chemical stocks. Simultaneously, she expressed a cautious view on some traditional automotive and pharmaceutical giants.
Gimber also favors European banking and chemical sectors, believing that as the yield curve steepens, bank stocks "still have room to move higher," while energy-intensive chemical companies stand to benefit significantly from a reversal of the recent oil price shock. Furthermore, he noted that in the context of falling oil prices, consumer-facing stocks and energy-sensitive cyclical stocks are also showing value opportunities.
Broader Wall Street Sentiment Shift
Their optimistic tone is not an isolated case. Several Wall Street institutions have pivoted their strategies this week. Barclays strategists on Wednesday raised their year-end target for the Stoxx Europe 600 index to 670 points, implying roughly 5% upside from current levels. They believe that falling inflation will provide catch-up momentum for lagging consumer cyclical stocks.
A Bank of America global equity derivatives strategist suggested that as the "fog of war" lifts, investors may shift from highly concentrated AI trades towards relatively cheap and generally underweight European stocks in search of diversification. Deutsche Bank went a step further on Monday, retracting its previous recommendation to favor U.S. stocks over European ones.
Macro Tailwinds and Policy Outlook
On the macro policy front, Gimber also believes the market has "priced in too much" regarding the extent of further interest rate hikes needed from the European Central Bank, which may provide an additional window of relief for risk assets. He stated, "If the theme for 2025 is embracing global diversification, then now when we can finally start thinking 'the worst of the shocks are behind us,' I see no reason not to continue this trend."
It is worth noting that as European equities have consistently underperformed the U.S. for nearly a decade, clients remain hesitant about the timing of a return. Ward admitted that many clients still refuse to be optimistic, citing Europe's "structural lack of growth" and frequently referencing the famous report on European competitiveness by former ECB President Mario Draghi.
However, she pointed out that Draghi's blueprint itself includes a €1.2 trillion annual investment plan focused on digital technology, clean energy, and defense. If these transformations truly advance, they would undoubtedly provide long-term fuel for a broad re-rating of European assets.
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