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The
U.S. bank now sees earnings per share growth for 2017 coming in
at 16 percent for the MSCI Europe with the index rising as much
as 8 percent over the next 12 months. For the FTSE 100 <.FTSE>,
the broker sees EPS growth of 24 percent and sees the index
hitting 7,700 in a year.
Politics and stretched sentiment indicators -- low volatility
and technically overbought levels -- are risks to watch, Morgan
Stanley said in a note to clients, but added that the improving
fundamental backdrop bodes well for stocks.
European equity markets are enjoying an earnings upgrade cycle
unseen in recent years. CHART: http://reut.rs/2jMAOf4
Over the past decade, forecasts for European earnings had
already come off about 5 percent, on average, by March. This
year forecasts are up about 1 percent, Morgan Stanley noted.
A key support to the firm's view on regional markets is optimism
about financials which remains an "overweight" among the bank's
recommendations.
European financials have taken sharp hits to profitability over
the past several years on the back of a sluggish economy,
regulatory pressures and, more recently, ultra-low or even
negative interest rates.
Despite the rally since last summer, shares of European
financials continue to offer an attractive mix of low valuations
and trough profitability, Morgan Stanley said.
"We believe they have entered a sweet spot where most, if not
all, relevant factors are positive and/or improving," analysts
at the U.S. broker said.
Banks however do remain most vulnerable to any uncertainty over
politics.
"This being Europe, political risk invariably seems to play some
role in a bear case scenario," they said.
(Reporting by Vikram Subhedar; Editing by Danilo Masoni)
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