LIVE MARKETS-EU staples: MS sees difficult 2026, selective bright spots

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EU STAPLES: MS SEES DIFFICULT 2026, SELECTIVE BRIGHT SPOTS

European consumer staples are set to close 2025 on a sour note, underperforming MSCI Europe by 10% and ending the year broadly flat. Next year might not look much better.

"We expect more of the same in 2026," write Morgan Stanley analysts, noting the valuation gap versus U.S. peers remains near record levels, with EU staples trading at a 30% discount.

They expect the trading environment to stay difficult, at least in H1, as Europe shows clear signs of a softening consumer and inflation continues to strain household budgets.

"All in… following several years of elevated food inflation, we see the consumer basket still somewhat strained, making for a more difficult pricing environment in 2026."

Commodity price pressures and concerns over alcohol consumption could weigh on margins for beverages and food players, while balance sheets stay under scrutiny.

Against this backdrop, MS says stock-picking remains key, though H2 could offer easier comparatives for some.

The bank prefers Household & Personal Care and Tobacco. Haleon HLN.L becomes the new HPC top pick, ABI ABI.BR leads in beverages, and Danone DANO.PA remains the favourite in food. Unilever ULVR.L returns to overweight, while Reckitt RKT.L is cut to equal weight.

(Danilo Masoni)

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