JPMorgan raised its year-end targets for European stock indices on Monday, citing strong corporate earnings and an improved geopolitical backdrop.

The Wall Street bank increased its target for the pan-European STOXX 600 index to 680 points from 630 points, representing a potential upside of approximately 7% from Friday's closing level of 635.88.

JPMorgan also lifted its target for the MSCI Eurozone index, a key benchmark for the region's equities, to 420 points from 385 points.

Global financial markets have been impacted by months of conflict in the Middle East, which fueled inflation and interest rate hike concerns, though a recent U.S.-Iran agreement has contributed to some market stability.

An analyst team led by Mislav Matejka stated in a report: "As the market gradually absorbs the negative impact of the conflict, Eurozone equities are poised for positive developments."

"Furthermore, if market breadth expands in the second half of this year, Europe could once again become a highly attractive investment theme."

JPMorgan noted that while risks such as a renewed escalation in geopolitical tensions persist, European equities offer solid allocation value if the market continues to price in the conflict's negatives and sector rotation broadens.

The bank stated that a larger-than-expected decline in oil prices and falling bond yields would provide further support for stocks, also pointing out that global investors are currently underweight European assets.

"We observe that global investors have low exposure to the European market."

Earlier this month, Barclays also raised its year-end target for the STOXX 600 and withdrew its bearish stance.

Eurozone Seen as Core Growth Driver

JPMorgan reaffirmed its overweight rating on Eurozone equities, expressing optimism about the earnings recovery outlook.

The bank forecasts that after last year's earnings contraction, Eurozone corporate profits will grow by approximately 20% by 2026, which will be a central driver for the regional stock market's rise.

The investment bank added: "Sustained improvement in economic sentiment indicators is expected to support robust earnings growth."

It stated that improving economic momentum coupled with policy support could extend the upward trend, with a stabilizing macro environment and continuously upwardly revised corporate earnings expectations playing a crucial role.

The report also emphasized that overall investor positioning remains light, suggesting room for foreign capital inflows into European markets once sentiment improves.