LIVE MARKETS-Europe's earnings engine has room to run

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EUROPE'S EARNINGS ENGINE HAS ROOM TO RUN

UBS is betting that earnings, rather than an expansion in valuations, will drive European equities higher through the end of next year.

Strategist Gerry Fowler forecasts the STOXX 600 .STOXX at 750 by the end of 2027, a 19% total return including dividends. The bank expects EPS growth of 13%, ahead of the 10% consensus forecast, helped by stronger sales growth and improving margins.

The STOXX 600 is trading at around 661.5

The key to that optimism is what the Swiss bank sees as a broadening earnings recovery across the region.

"AI momentum has moved to the companies building capacity," the strategist writes, arguing that the first wave of data-centre suppliers is now spending heavily to expand production capacity. That should benefit European companies with about €1.7 trillion in combined market value.

UBS also sees fiscal spending finally feeding into profits. "Fiscal spending is reaching earnings," Fowler adds, noting that upgrades for German infrastructure stocks only turned positive in July, a theme he prefers to defence spending.

Banks are another favoured area. Despite stronger loan growth and generous capital returns, UBS believes lenders remain cheap and could enjoy a re-rating.

UBS remains cautious on consumer stocks as confidence remains weak, but says that could change quickly if jobs and wages stabilise. For now, his advice is: "Don't be early but watch for an abatement in negative revisions to buy in."

(Danilo Masoni)

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