JP Morgan reiterates overweight stance on euro area equities

Strategists at JP Morgan reiterated their 'overweight' stance on euro area stocks, telling clients that projections for profit growth in 2017 are not as stretched as might seem and recommending that they favour domestic names over exporters in light of expected weakness in the US dollar.

Eurozone shares were no longer underpricing the reflation trade, but their earnings base continued to be depressed, they said.

Earnings per share for the shares were at 2006 levels, versus those of US peers which were 30% above past cycle highs.

"At face value elevated 2017 EPS growth projections are skewed by base effects and one-offs, the median stock forecast is a very reasonable 8.4%," they explained.

The greatest operating leverage was to be found in domestically oriented names, they added.

That dovetailed with the investment bank's forecast for euro strength/dollar caution.

Among domestic names, telecoms appeared to be "extremely cheap" so the strategists reiterated their recent upgrade on the group to 'overweight'.

Banks were also "interesting"; although JP Morgan believed they would remain "hostage" to bond yields, the investment bank preferred them to shares of US lenders.

JP Morgan also advised being 'long' banks versus global cyclicals.

A pair trade of being long the Euro Stoxx50 versus the Dax was also labelled "interesting".