Recent developments from Deutsche Bank indicate that it has become more bullish on European equities, predicting that high regional indices will be 12-16% higher than the current value. This is believed to be the case due to the current signs of economic stabilization, prospective improvements in earnings, and a more favorable policy environment across the Eurozone. Unlike their more cautiously pessimistic views of the European equity market, Deutsche Bank’s equity market bears a more optimistic view and predicts equities will soar on the market.
Stronger macroeconomic conditions are easing inflation pressures
Macroeconomic conditions that are positively changing, along with recessionary easing of inflation, downward inflation pressures, and government spending, suggest that equities will soar in value.
Equities on the Euro Stoxx and across the major European range will more than likely improve their value by double digits in the current fiscal year, according to Deutsche Bank. This is in hopes of a full recovery in 2024.
The anticipated recovery is expected to bring the most benefits to the industrials, financials, and green energy sectors.
Maximilian Uleer, Deutsche Bank strategist, regarding the driven double-digit profit growth and still undemanding valuations:
“For 2026, we project 12-16% upside for major European indices.”
Europe vs the US: Changing attitudes
Deutsche Bank surprises us with its preference for European equities over US equities. Despite the strong performance of the US stock market, especially the tech-heavy Nasdaq, Deutsche Bank believes the European market is more appealing when it comes to valuations and rewards.
The report explains that European equities, both fundamentally and historically, are undervalued compared to US equities.
In light of these European strengthening fundamentals, the Bank looks for a potential ‘capital rotation’ to the continent.
Another quote from a Deutsche Bank strategist stated that:
“We are positive on both regions but expect the 15 years of underperformance of European versus US equities have come to an end.”
European Central Bank decisions to impact European equities
European Central Bank interest rate decisions impact European equities. More recently, the ECB has expressed a dovish stance on interest rate policy, which may assist stock market performance.
When rates are stable, costs of borrowing are readily accessible, and investors use borrowed funds to increase stock market investments.
Deutsche Bank made note of policy support aiding Europe’s recovery. A snapshot of the European Union’s (EU) Recovery Resilience Facility, under the NextGenerationEU initiative, provides large fiscal support to Europe.
Recovery funds are allocated to projects in green energy, digital transformation, and infrastructure. These are expected to provide long-term growth to the economy.
Geopolitical changes present new opportunities
In addition, the bank argues that Europe’s energy crisis in the wake of the Ukraine war has fast-tracked the continent’s goal of energy independence. Europe’s focus on sustainability will lower climate change and structural energy dependence. These geopolitical changes present new investment opportunities in renewables, electric vehicles, and adjacent technologies.
To complete the story for Europe, Deutsche Bank anticipates risks remaining.
Current geopolitical tensions in the Middle East and Eastern Europe are potential market disruptors that will impact investor sentiment. While inflation has eased, it continues to exceed target inflation in multiple countries, keeping central banks in a tight spot.
Yet, Deutsche Bank expects the most probable scenario involves Europe’s equity market with strong valuations, macro indicators, and the absence of ‘extreme’ geopolitical market disruptors.
Deutsche Bank has recently revised its outlook for Europe, which may result in investors shifting their portfolio to include more European assets. As always, having a long-term outlook and a diversified portfolio are the most important factors to keep in mind. Although the industry may not be entirely stable, the recent improvements in Europe provide a timely opportunity to investors looking for value and growth outside of the United States.