Relatively cheap European stocks set for another 11% gain in 2026- Reuters poll

By Ozan Ergenay

LONDON (Reuters) - European shares will repeat this year's strong gains in 2026, a Reuters poll indicated, with investors hopeful that an improving economic environment combined with still low valuations relative to the U.S. will send indexes up 11% from current levels.

European stocks are also well placed to fall less than other indexes, such as those in the U.S., should the much-discussed bubble in artificial intelligence stocks burst, investors said.

The pan-European STOXX 600 index is expected to rise to 623 points by the end of 2026, according to the median forecast in the poll of equity analysts and portfolio managers.

That would imply a gain of around 11% from current levels and push the index well above a record high of 586.33 touched earlier this month.

The STOXX 600 has rallied 11.9% this year. It initially benefited as Germany's decision to scrap its constitutional debt brake drove optimism about the European economy, and as investors shifted assets out of tariff-roiled U.S. markets.

While U.S. stocks bounced back later in 2025, European indexes continued to gain in the second half of the year, rising alongside a rally in world stocks. 

And investors see scope for further gains next year, particularly as European indexes remain cheap in comparison with those elsewhere. 

"The discount in prices for similar businesses between the U.S. and Europe is at new records and the coming quarters are expected to see a convergence in economic trajectory between European economic growth and that of the U.S.," said Kevin Thozet, a member of the investment committee at Carmignac.

He said this should be reflected in the earnings of European companies. 

The blue-chip Euro STOXX 50 benchmark index is also expected to post a 6.7% gain to 5,900 in the next year before reaching new heights in mid-2027 at 5,955, the poll showed. 

AI DILEMMA 

There was much excitement in Europe at the start of 2025 when the STOXX 600 dramatically outperformed the S&P 500. 

That outperformance fizzled out in the second half of the year, with the two indexes up roughly the same amount in local currency terms. Which will outperform next year will depend on what happens with high-flying technology stocks, respondents to the poll said. 

A year-long rally in tech stocks has lost some steam in recent weeks, with investors concerned about whether long-promised returns will materialise, circular spending within the sector, and debt issuance. 

"AI may hold the fate of equities in 2026 but is no longer a one-way trade, nor the only show in town," said Magesh Kumar Chandrasekaran, European equity strategist at Barclays.

He said European stocks were well positioned, "given their cheaper valuation, lower crowding and easier earnings (comparisons), without being overly dependent on the fate of the AI trade". 

AI stocks could continue to rally, and Joe Maher, assistant economist at Capital Economics, said that "the biggest relative headwind for European stock markets is that they are tech-light at a time of growing enthusiasm for AI".

But that's not always bad news. 

"We have penciled in the bubble in AI-related stocks bursting in 2027 and we expect that would weigh on European equities, but their low weighting of tech stocks may help them to outperform U.S. equities," Maher added. 

German and French indexes are also in focus next year. Investors will be watching to see whether Germany's plans to massively increase spending on defence and infrastructure will transform its economic fortunes, and what effect French political gridlock will have. 

Market experts polled by Reuters also expect Germany's blue-chip index to rise around 9.7% to 25,500 by the end of 2026. The index has gained 17.9% so far in 2025. 

France's blue-chip index CAC 40 has been a relative underperformer, up 8.7% year-to-date. It is expected to jump 8% to 8,600 by the end of 2026.

(Other stories from the Reuters Q4 global stock markets poll package)

(Reporting by Ozan Ergenay in London; Additional Polling by Aman Kumar Soni and Jaiganesh Mahesh in BENGALURU; Editing by Alun John and Jan Harvey)