LIVE MARKETS-Who needs earnings growth? Not European shares
European stocks, represented by the STOXX 600, have risen 13% this year despite minimal earnings growth. Societe Generale analysts note that earnings per share are expected to grow by only 0.8%, with a contraction of 1.7% excluding financials. Despite this, the forward P/E ratio is above the 20-year average. Analysts expect a positive start to 2026 for European equities, driven by anticipated German stimulus measures.
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WHO NEEDS EARNINGS GROWTH? NOT EUROPEAN SHARES
European stocks have had a good year, with the broad STOXX 600 up 13%, and the third year of gains but Societe Generale analysts point out that this has come basically without any earnings growth at all.
STOXX 600 earnings per share are expected to grow by just 0.8% this year, and excluding financials, EPS are actually expected to contract by 1.7%.
“At times, it has felt like a kind of brinkmanship, with investors continuing to double down in the hope that the next stage would finally deliver,” say Societe Generale.
Not surprisingly with shares rising and earnings flat, the 12 month forward P/E ratio stands at 14.4x, above its 20-year average of 13.1x.
You’d think that’d be an argument for caution about European stocks next year, but actually Soc Gen anticipate a good start to 2026, largely because that’s what happened in the last three years.
“European equities have typically begun with optimism, only to lose momentum later as earnings failed to meet expectations”. They aren’t unique in those expectations. Analysts polled by Reuters expect the STOXX 600 to rise 11% in 2026, as much-discussed German stimulus measures finally start to have an effect.
(Alun John)
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