Deutsche Bank turns 'overweight' on European equities

By Kanchana Chakravarty and Siddarth S

(Reuters) -Deutsche Bank and Citigroup have turned bullish on European equities as lower interest rates, hopes of a strong corporate earnings season and an improving political outlook are expected to bolster sentiment in 2025.

European markets widely lagged their U.S. counterparts last year as investors worried about an uncertain political landscape and the impact of U.S. President-elect Donald Trump's tariff policies on the region's economy.

STOXX 600, the benchmark European index, gained only 6% in 2024, while the S&P 500 index surged 20% during the same period.

"European equities have been in the eye of the storm in 2H24 ... however, we argue the time might be right to re-engage with European equities," Citigroup analysts wrote in a note dated Monday.

Citi also expects the European benchmark index to reach 570 points by the end of this year, implying an 11% upside to its Monday close of 513.02 points.

On the other hand, Deutsche Bank is expecting the European benchmark index to hit 590 points by the end of 2025, implying a 15% upside.

At the same time, as the region's markets get cheaper, some investors are increasingly interested in hunting for bargains, arguing that assets are fully priced for more disappointment and could rally strongly if the geopolitical and economic backdrop brightens.

"Economic surprises continue to improve, political uncertainty is fading ... and potential Chinese stimulus announcements in Q1 add upside risk," Deutsche Bank analysts said.

"The stronger USD is another tailwind for European earnings and should compensate for the negative effect from potential US tariffs," they added.

On the sector front, the brokerage turned "overweight" on the European healthcare sector, citing the potential for solid earnings growth and a strong negative correlation to rates.

(Reporting by Kanchana Chakravarty and Siddarth S in Bengaluru; Editing by Savio D'Souza and Anil D'Silva)