HSBC has observed a notable rotation of European equity fund flows away from France and toward the United Kingdom, attributing the shift to concerns over France's fiscal outlook. In a September 23 report the broker downgraded its stance on France to "underweight," citing a worsening fiscal backdrop, weaker economic forecasts and deteriorating analyst expectations. Despite the regional reallocation, HSBC said European equity funds have remained resilient overall, with recent economic data surprises and improved business sentiment supporting the market.
The bank raised its year‑end target for the STOXX 600 index to 680 points, highlighting a growing preference among European companies for their domestic markets. HSBC also noted that the FTSE All‑World index, a proxy for global equities, rose 2.4% in the third quarter of 2026, and that historically the fourth quarter has been the strongest period for both equity fund flows and market performance.
European investors continue to favour domestic sectors over foreign‑exposed ones, resulting in positioning levels that are high relative to historical norms. However, HSBC warned that weaker earnings momentum at many companies suggests investors may be taking on more exposure than the underlying earnings outlook supports.
Technology is projected to deliver the strongest earnings growth in Europe for 2027, with consensus forecasts indicating a 27% increase. Although earnings expectations have been weakening, the sector remains among the least‑owned relative to its history, and HSBC maintains an "overweight" stance on technology.
In healthcare, consensus forecasts call for earnings growth of 5% in 2026 and about 9% in 2027. Sentiment toward the sector has improved following upgrades after second‑quarter results, but HSBC retains a "neutral" rating.
Financial stocks are benefiting from high bond yields, and investor positioning in this segment has recovered but remains below historical highs, leaving room for further buying if interest rates stay supportive. HSBC’s economists expect the European Central Bank to raise interest rates twice – in December 2026 and February 2027 – a move that could continue to support financial stocks.
Overall, HSBC’s commentary underscores a fund‑flow shift from France to the UK, a bullish outlook for domestic European equities, strong growth expectations for technology, modest optimism for healthcare, and a supportive environment for financial stocks pending anticipated ECB rate hikes.