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WOULD PEACE BOOST EUROPEAN STOCKS?

Not all that long ago, investor enthusiasm about Europe was flying. But the Iran war put a quick end to that

Europe’s vulnerability to energy supply shocks meant that investor optimism faded quickly and growth outlooks were soon cut after the conflict broke out, said, investment strategists at BofA Global Research, noting that until peace deal hopes surfaced earlier this week, European equities had underperformed global peers by 7% since the start of the war.

But even peace in the Middle East might not be enough to make a major difference, the strategists warned.

Even if the conflict were resolved this month, energy prices would stay elevated – which in turn would still weigh on macro conditions, they explained.

“Europe's unfavourable macro dynamics combined with inferior earnings growth relative to the US point to further underperformance, keeping us underweight Europe relative to global equities,” the strategists said.

Further macro weakness could also weigh on European equities in absolute terms, they added.

"The market has so far looked through the weakening macro data, but is likely to get jittery if more signs of growth deterioration emerge, with our macro projections implying around 15% downside for EU equities," they said.

(Sophie Kiderlin)

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