JPMorgan Chase & Co. advised investors to buy European stocks on any “weakness,” saying the economic cycle and earnings continue to support shares.
“Many are arguing for a correction given that the market appears overbought and the sentiment is seen as overly bullish,” Mislav Matejka, head of European equity strategy, wrote in a note today. “We believe risk-reward for stocks remains compelling.”
Insurers, miners, technology companies, energy producers and carmakers are JPMorgan’s “top picks.” The firm is “cautious” on defensive shares including utilities, drugmakers, food producers and telecommunications operators.
The Stoxx 600 Europe Index has surged 24 percent since its 12-month low in May 2010 on optimism that the U.S. economy is improving and as European governments bailed out Greece and Ireland.
European stocks continue to be valued at less than the historic average multiple of their earnings for the next 12 months. Central banks will keep interest rates at record lows, JPMorgan wrote, and investors will allocate more of their assets to equities, supporting share prices.
“Equities appear attractively valued versus other asset classes, are underowned and have posted resilient performance over the past two years, which usually leads to inflows starting,” Matejka wrote.
To contact the reporter on this story: Adria Cimino in Paris at firstname.lastname@example.org.