LONDON, Sept 30 (Reuters) - JPMorgan raised its rating on euro zone equities to “overweight” on Monday, reversing a longstanding preference for U.S. shares, and said the bloc’s battered stocks have an opportunity to bounce back.
The bank said U.S. shares are being cut to “neutral” and that it will shift some money to European stocks, because the European Central Bank’s pledge of indefinite stimulus is likely to revive an ailing euro zone economy.
“We now believe that there is an opportunity for Eurozone to bounce back,” lead equity strategist Mislav Matejka said, adding that current valuations present “a good entry point”.
The ECB has resumed quantitative easing, which should help euro zone stocks, the bank said in a note to clients. Any increase in fiscal stimulus speculations could help as well, it said.
“While JPM base case is that meaningfully stronger fiscal support is unlikely anytime soon, we believe that equity markets could start to price in increasing odds of this happening,” Matejka added.
European stocks have underperformed U.S. shares since the 2008 financial crisis, dragged down by a debt crisis, slowing economies and the recent U.S.-China trade war.
Banking stocks in particular have suffered in the past 10 years and JPM has preferred U.S. banks, but now it believes a reversal might be coming.
Global funds have shunned euro-zone stocks amid rising trade tensions, Brexit risks and a German manufacturing slowdown. The most recent fund flow data by Bank of America Merrill Lynch showed funds had pulled money from the region for 78 out of the past 81 weeks.
Reporting by Thyagaraju Adinarayan; editing by Karin Strohecker, Larry King