Investing.com - UBS has reassessed the outlook for European equities, and has lifted its year-end target for the region’s benchmark Stoxx Europe 600 index.
Taking a fresh look at the models that form the basis behind its predictions, UBS sees fractionally more optimism on earnings growth, but a lot more room for optimism on valuations.
“The compression in credit spreads, policy uncertainty and BTP/bund spreads along with potential rate cuts and lower bond yields lead to a new estimate that the SXXP forward PE valuation will be between 13.5x and 14.6x through year-end depending on the risks around the U.S. election,” the bank said, in a note dated May 23.
As a result, UBS has a new target for year-end of 540, within an expected range from 480-560.
At 05:35 ET (09:35 GMT), the Stoxx Europe 600 index traded 0.3% higher at 522.78.
The bank added that earnings revision divergences have re-emerged after a period of stability, and its favored sectors of media, energy, construction materials, real estate and pharma reflect this.
The bank’s least favored sectors are mining (steel), tech hardware, autos, software, consumer staples and Food & Beverages.
“These reflect a mix of weak earnings revisions, high valuations or weakening in crowding scores as investors press shorts (autos and tech hardware) or trim longs (software),” UBS said.