Overview

JPMorgan issued a note stating that European equities are trading at all‑time highs and that earnings are picking up after three years of subdued performance. The bank takes a constructive view, citing improving earnings, lower relative valuations compared with U.S. peers, and higher shareholder returns.

Key Metrics

  • Eurozone equities delivered a 7% outperformance versus the United States in local‑currency total return last year.
  • For the current year, JPMorgan projects Eurozone total returns of about 12% versus 9% for the United States.
  • The CESI (Composite Economic Sentiment Index) has reached a two‑year high, while Eurozone PMI, credit growth, and earnings revisions are all on an up‑trend.

Monetary Policy Context

Analysts do not expect inflation expectations to become de‑anchored, which they believe will limit the magnitude of upcoming ECB rate hikes to levels smaller than those already priced into the market.

Regulatory Environment & M&A

JPMorgan notes an increasingly supportive regulatory backdrop that is driving a steady rise in M&A volumes since their low point in 2023.

The note highlights that the United Kingdom, France, and Germany have a higher proportion of stocks trading below book value than the United States, creating attractive M&A targets amid a global surge in dealmaking.

Shareholder Activism Outlook

The bank anticipates a pickup in shareholder activism across Europe, describing the region’s equities as undervalued with identifiable governance, capital‑allocation, and operational levers, and generally not in financial distress.

Activism is most frequently directed at the Industrials, Consumer Discretionary, and Technology sectors, with campaign volumes especially high in the U.K., Germany, and France.

A newly proposed revision to the Shareholder Rights Directive (SRD III) is expected to act as a catalyst, shifting activist focus from traditional business‑strategy objectives to capital‑allocation outcomes such as share repurchases and dividend distributions.

Sector‑Specific Observations

  • Industrials, Consumer Discretionary and Tech are the primary targets for activist campaigns.
  • Post‑campaign outcomes are increasingly centered on returning capital to shareholders through buybacks and higher dividends.