European stocks will rally 17 percent through the end of next year as earnings growth supports valuations and “extreme pessimism” abates, according to Barclays Plc.
“We do not believe it is time to throw in the towel and abandon the European equities ship,” Edmund Shing, the London- based head of European equity strategy at Barclays Plc, wrote in a report today. “The upside risk continues to outweigh the downside risk at this point.”
Equity investors rely on a decline in Italian bond yields that may only happen if there is “massive” buying of these securities by the European Central Bank, Shing said. Italy’s proposed coalition government will need to present tangible plans to stimulate economic growth before yields drop, he said.
The Stoxx Europe 600 Index has slumped 14 percent this year as the debt crisis that first engulfed Greece and Ireland threatened to spread to the larger economies in southern Europe. Italy’s Senate will vote on measures today to cut its 1.9 trillion-euro ($2.6 trillion) debt in an attempt to shore up investor confidence before a new government takes charge. LCH Clearnet SA increased the deposit it demands from clients to trade Italy’s debt on Nov. 9, leading yields on the country’s benchmark debt to surge to euro-era records.
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