MW Never mind France - it's time to buy European stocks again, says JPMorgan

By Jules Rimmer

JPMorgan encourages investors to shift out of Japan into eurozone equities and take advantages of trends that emerged in January of 2025 but have since been overlooked.

Entering the home straight of 2025, JPMorgan strategists, led by Mislav Matejka, are upgrading eurozone stocks back to overweight again.

They say the positioning and expectations overhang has been largely eradicated, they contend, valuations have improved and overly-exuberant flows unwound.

Moreover, JPMorgan now calculates the region trades two standard deviations cheap and believes now is the time to turn bullish.

European stocks, after a fast start to the year, tread water over the last seven to eight months, though they now sit right below record highs, with the Euro Stoxx 50 XX:SX5E just 0.3% away.

European gains vs. the U.S. have dissipated.

The Vanguard FTSE Europe ETF VGK has basically doubled the S&P 500 this year.

The strategy note published Monday outlines a developing bias in terms of investment style, less in favor of growth versus value than has been the case for years. It also argues for a more constructive approach towards small caps as opposed to large caps, and emerging markets EEM versus developed, again overturning well-entrenched inclinations.

While relative positioning and growth forecasts inform the changing approach, much of this shift is predicated on the softening in the dollar DXY JPMorgan anticipates. This, in turn, is a function of its call for labor market weakness and expectations for higher inflation.

With U.S. equities stretched on a price-earnings multiple of 23 times and America's weighting in the MSCI World index at a record 75%, Matejka identifies a clear opportunity for the international rotation witnessed back in January and February to restart.

JPMorgan's optimism about the prospects for eurozone stocks isn't wide-eyed, however. Matejka cautions about the potential fissure created by political uncertainty in France especially but stresses that most likely he would exploit any sell-off in France as an opportunity to buy into weakness as he doubts the pressure would be sustained.

At present, however, positive catalysts for the eurozone are too powerful for JPMorgan to ignore. German fiscal stimulus, promised in January, for example, is on the point of delivery but Matejka reckons the markets are overlooking this. Matejka is also optimistic about Chinese growth prospects and believes this will benefit parts of the eurozone, specifically miners (that JPMorgan also overweights) but also, along with possible European central bank rate cuts, generating a positive credit impulse within European lending markets.

Eurozone earnings that were disappointing thus far in 2025 should accelerate next year, according to Matejka, while as a contrarian call, he also emphasized that a ceasefire in the Russo-Ukrainian conflict should not be discounted.

Taking advantage of the strength in Japanese equities, Matejka books profits from his overweight recommendation there and recycles them into the eurozone. His favored sectors are defense, based on military spending commitments, miners that should benefit from better Chinese growth, industrials, construction, materials and utilities.

-Jules Rimmer

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

October 06, 2025 08:31 ET (12:31 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.