Barclays shifts to 'peace target' of 670 for STOXX 600, drops Europe underweight
Barclays Raises STOXX 600 Target and Revises European Equity Outlook
June 17 (Reuters) - Barclays raised its year-end target for the STOXX 600 index to 670 from 620 on Wednesday and dropped its bearish view on regional stocks, citing lower oil prices and the possibility of a U.S.-Iran deal improving the economic outlook.
Market Reaction to U.S.-Iran Peace Agreement
The pan-European stock index is trading near a record high after the United States and Iran reached a preliminary peace agreement earlier this week to reopen the Strait of Hormuz and end the three-month conflict in the Middle East. The index has reclaimed all of its post-conflict losses and is up about 7.4% year-to-date.
Performance of European Equities
European equities have lagged global peers since the onset of the conflict, weighed down by energy shocks and tighter financial conditions, but Barclays now sees the region's near-term risk-reward improving as those pressures begin to ease.
Barclays' Strategic Shift
Barclays said its move to the "peace target" reflects expectations of stronger earnings growth and a partial recovery in valuations as geopolitical risks recede in the second half of the year. It also closed its "Underweight" stance on European stocks.
Sector Performance and Market Implications
Many European sectors remain below pre-war levels, even as investors have rotated into some of the segments hardest hit by the conflict.
The new target implies an upside of around 5.3% from Tuesday's close of 636.
Supporting Factors for European Markets
The brokerage added that falling oil prices and stabilizing macro indicators could support a rebound in Europe, with earnings momentum likely to hold up as tail risks diminish. It also flagged potential broadening in global market leadership beyond technology-heavy U.S. stocks.
Sector Upgrades and Downgrades
Barclays also turned more constructive on parts of the consumer space, upgrading luxury to overweight, even as luxury stocks are among the worst-performing on the STOXX this year, while downgrading healthcare to underweight.
Broader Market Perspectives
Earlier this week, Deutsche Bank turned "Neutral" from "Overweight" on U.S. versus European equities, saying a narrowing growth gap and easing tailwinds for U.S. stocks could reduce their relative outperformance.
(Reporting by Rashika Singh in Bengaluru; Editing by Rashmi Aich)
