Investors return to European stocks as strong earnings lift Iran war gloom

{"text":[[{"start":9.16,"text":"Investors are returning to European equities as a strong earnings season and lower oil prices boost the region’s credentials as a hedge against volatile global tech stocks."}],[{"start":20.12,"text":"European companies are on track to deliver 22 per cent year-on-year earnings growth in the second quarter this year, according to FactSet data, defying a period of higher energy prices to record their best growth since 2022, when global markets were rebounding from the Covid-19 crisis."}],[{"start":38.56,"text":"That is a “standout season” for the region’s stocks, said Morgan Stanley’s European equity strategist, Marina Zavolock, adding that earnings have been “really positive across almost every sector”."}],[{"start":50.04,"text":"Bloomberg data shows that European stock exchange traded funds saw a month of positive net flows in July for the first time since the US-Iran conflict started at the end of February, while BlackRock said its European equities products saw $4.4bn of inflows in July, which it described as “evidence of anti-momentum allocations” away from volatile chipmaker stocks."}],[{"start":null,"text":"

"}],[{"start":74.28,"text":"Investors are rewarding the strong earnings performance, sending the Stoxx Europe 600 index to a series of record highs in the past week. Other indices — including Germany’s Dax, the FTSE 100, the Cac 40 in France and the Ibex in Spain — have also surged to record highs."}],[{"start":92.74,"text":"Strong earnings have created extra “diversification interest” in European stocks in recent weeks, according to Zavolock. A brutal sell-off in global semiconductor stocks in July had prompted a renewed interest in regions such as Europe, investors said, where returns are less tied to volatile technology and AI stocks."}],[{"start":112.12,"text":"Banks have been among the standout performers in Europe’s second-quarter earnings season, benefiting from higher interest rates prompted by the oil price surge, as well as a volatile market environment boosting traders. BNP Paribas saw its quarterly profits surge by a third, while UBS profits jumped 17 per cent to a record high, both driven by trading revenues."}],[{"start":134.02,"text":"The Stoxx banks sub-index has powered ahead of the broader index this year, climbing more than 21 per cent compared to 11.5 per cent for the Stoxx Europe 600."}],[{"start":144.64,"text":"Technology stocks in Europe were also some of the biggest contributors to index earnings growth, with chipmakers ASML and Infineon both raising their revenue forecasts for the rest of the year. Energy stocks, too, were responsible for a large part of Europe’s earnings growth in the second quarter, a period of high oil and gas prices."}],[{"start":163.76,"text":"“If Europe can seriously print mid-teens earnings growth in 2026, that’s an incredibly strong result for an economy where investors have had serious questions about whether companies can grow earnings,” said Hugh Gimber, global market strategist at JPMorgan Asset Management. This was “supporting a rotation into Europe”, Gimber added."}],[{"start":null,"text":""}],[{"start":182.8,"text":"European stocks underperformed Wall Street for much of the second quarter, as the US-Iran conflict and the de facto closure of the Strait of Hormuz sent oil and gas prices soaring, which traders judged to be especially negative for energy-importing Europe."}],[{"start":196.42,"text":"But signs that Washington and Tehran are trying to end the conflict have allowed oil prices to trade back below $90 a barrel, boosting the economic outlook in Europe and allowing investors to dip their toes back into the region."}],[{"start":209.38,"text":"Beata Manthey, head of European equity strategy at Citi, said that an easing of Middle East tensions meant that Europe had probably avoided the worst-case economic scenario from higher energy prices, which “has caused a lot of flows” to the region’s equities. At the same time, “international investors have started liking Europe again because it is an anti-AI trade”, she said."}],[{"start":230.84,"text":"The Eurozone economy surpassed expectations to grow 0.4 per cent in the second quarter, despite the higher energy prices, which investors said had also added to the desire to invest in the region."}],[{"start":242.48,"text":"European company earnings are still overshadowed by exceptional profits in the US, which has seen another stellar earnings season and notched up 50 per cent year-on-year earnings growth according to FactSet. Despite the recent rally in European stocks, the S&P 500 remains narrowly ahead of the Stoxx 600 this year."}],[{"start":260.92,"text":"But Vera Fehling, chief investment officer for western Europe at DWS, pointed out that “for a long time, we had European earnings growth roughly at zero”. Now, “it makes a much better diversifier than it did before”, she said."}],[{"start":274.44,"text":"Flows to European equities still remain below their record levels from the beginning of 2026."}],[{"start":280.16,"text":"Emmanuel Makonga, a European equities strategist at Barclays, said that international investors’ interest in the region remains “selective”, with bank stocks a popular choice for getting exposure to Europe."}],[{"start":291.8,"text":"In early July the flows to Europe’s stocks consisted of “people getting out of the US . . . rather than interest in Europe,” Makonga said."}],[{"start":300.08,"text":"But as earnings season goes on, “we have this confirmation that, beyond the pure diversification, you have some fundamental support for this broadening”, Makonga said. “People are keen to re-engage.”"}],[{"start":317.36,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1786274819_9400.mp3"}