European equities could jump 6% over the coming months, according to Bank of America Merrill Lynch (BAML)'s latest report.
The bank forecasts the pan-European stoxx 600 index will rise to 415 points by March next year.An employee talks on the phone as he views trading screens at the offices of Panmure Gordon and Co.European equities could jump 6% over the coming months, according to Bank of America Merrill Lynch's latest report.index will rise to 415 points by March next year. Currently, the stoxx 600 is trading at 395, up more than 16 percent year-to-date.
"Euro area and U.S. September PMIs were weak last week, consistent with negative GDP growth in both regions. However, we expect growth momentum to improve over the coming months," the report said Tuesday. In analyzing the upside for European equities, the report highlights that the U.S. has been the main external drag on the euro area, due to the sharp decline in PMIs, as opposed to China where the data has risen to highest level since early 2018.
"U.S. growth momentum has suffered from USD headwinds, but the USD is now set to become a tailwind," the note said, adding that the risk of a recession in the U.S. remains low. The bank also expects European cyclical stocks to outperform defensive stocks by 5% in the months ahead. Meanwhile, in terms of sectors, BAML remains overweight on European airlines, mining firms and banks. But it remains underweight on European consumer durables and utilities.
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