Bank of America becomes optimistic about European stocks, forecasting growth potential in 2025.
Bank of America analysts have reassessed European stocks and recommended an “overweight” position in a note on Friday, citing improved economic momentum in the region and the availability of investment opportunities. This move comes despite general expectations of global economic slowdown and challenges arising from uncertainty in U.S. policies.
The analysts explained that “two years of strong global growth, led by the U.S. economy, have pushed stock markets to near all-time highs.” However, they anticipate a moderate global slowdown, with the global Purchasing Managers’ Index (PMI) for new orders expected to decline from 52 to 49 by mid-2025. The bank notes that this slowdown could lead to increased risks and new earnings downgrades, potentially putting pressure on stock markets.
For European markets, the analysts expect a 7% drop in the Stoxx 600 index to 470 points by mid-year, but they forecast a rebound to 500 points by the end of the year. In this context, defensive stocks and high-quality names are expected to outperform.
Despite near-term challenges, the analysts pointed out several positive factors for European markets. They expect a moderate increase in the Eurozone PMI from its lowest level of the year at 47, supported by improved credit conditions, easing inventory cycle pressures, potential fiscal stimulus, and the possibility of a ceasefire in Ukraine, which could lead to lower energy costs.
Bank of America believes that the 15% decline in European stocks since Q2, along with their pricing for weak domestic growth, presents a buying opportunity. The analysts stated, “We are tactically raising our European stock rating to overweight relative to global markets.”
Additionally, small-cap stocks are expected to benefit from improved regional economic conditions. The bank noted that “a moderate increase in the Eurozone PMI would support small European stocks over large caps, given their position as a local cyclical asset and because their 20% decline over the past three years has priced in minimal expectations for an improvement in the local economic outlook.”
Bank of America analysts concluded that these factors justify their optimistic stance on European stocks compared to their global peers, emphasizing the tactical momentum driven by relative growth in the Eurozone.
