Political uncertainty to keep weighing on Eurozone equities By Investing.com

JPMorgan analysts see political uncertainty as a key hurdle for Eurozone equities, despite some positive underlying factors.

“Eurozone equities showed some relative stabilization in Q1/Q2, before breaking lower most recently on a spike in French political uncertainty,” analysts note.

While the fundamentals appear stronger in the Eurozone compared to the US, with a more positive China stance and the ECB easing monetary policy, investors shouldn’t jump in just yet.

“Current uncertainty still needs to lift,” JPMorgan cautions. Valuations are attractive, but Eurozone stocks haven’t reached oversold territory, analysts state, adding that the key will be improved visibility on the political front, particularly the upcoming French elections.

JPMorgan doesn’t view the French situation as a “game changer,” but acknowledges near-term risks. “The chances are that RN gets a bigger share of vote than currently assumed,” analysts say, potentially leading to a new government testing boundaries with “more aggressive fiscal easing.” This could force financial markets to push back, potentially causing further equity drawdowns.

“We think that, as we move through 2H, there is likely to be a good entry point to buy Eurozone,” JPMorgan concludes. However, for now, analysts recommend staying on the sidelines “given the elevated risk of further drawdowns and no capitulation visible.” They favor defensive sectors, caution against consumer plays, and believe growth stocks will outperform value.