Oil prices rise after EU agrees Russian sanctions
Investing.com - European equities have had a solid start to the year, outperforming U.S. stocks and other developed markets.
Prior to the start of trading on Monday, the pan-European Stoxx 600 had climbed by more than 7% so far in 2025, while the benchmark S&P 500 had gained 1.9%.
Analysts have pointed to the relatively cheaper value of European names compared to their American peers, which have jumped sharply after multiple years of advances.
Strategists at UBS cited a number of other factors, including plans for more pro-growth policies in traditional European economic powerhouse Germany, as well as hopes for a potential ceasefire between Ukraine and Russia, an improving outlook for manufacturing in Europe, and optimism around ongoing trade negotiations between the European Union and the U.S. spurring more regional spending on defense.
In a note to clients, the UBS analysts said they remain "neutral" on European stocks, but listed several ways these catalysts could drive equities in the region.
Defense companies that have "relatively stable earnings" irrespective of economic cycles or fluctuations in global equity markets should be beneficiaries of these trends, they argued. Heightened security investments -- including a possible upward revision of NATO’s current 2% defense spending target -- could lift these names as well, the analysts said.
Changes in German government rules that lead to more less restrictive regultions, tax cuts, lower energy costs, and potentially improving consumer confidence are also seen boosting stocks in the industrial, real estate, and material segments.
Meanwhile, chemicals and automotive companies may receive a lift should Ukraine and Russia reach a deal to halt their longstanding conflict, the analysts said, flagging that a peace could cause a reduction in gas prices that would add to European corporate profits and aid broader European economic activity.
European firms with limited exposure to tariff risks and solid pricing power are tipped to excel amid current trade tensions. These include stocks in the telecommunications, utilities, financials and health care industries, the UBS analysts said.
Among the individual stocks with the highest weight in UBS’s portfolio are insurer Allianz (ETR:ALVG), drugmaker AstraZeneca (NASDAQ:AZN), Deutsche Telekom (OTC:DTEGY), pharmaceutical company Haleon (LON:HLN), software group SAP, and oil and gas firm TotalEnergies (EPA:TTEF).