HSBC has cut UK equities to "neutral" and lifted Germany to "overweight" for the second half of 2026, while also downgrading France. The bank held its Stoxx 600 forecast at 670 for year-end 2026 and kept Banks, Industrials and Utilities as its favored sectors.
HSBC downgraded UK equities to "neutral" from "overweight" for the second half of 2026, pointing to a higher bar for earnings to beat given the market's heavier energy and materials mix. Growth expectations have been revised higher and policy uncertainty has eased relative to the continent, yet neither was enough to hold the overweight rating.
The brokerage also cut France to "neutral" from "overweight", citing softened domestic activity, sharply weaker earnings estimate momentum, and political and fiscal uncertainty. Those factors leave the risk/reward balance more even heading into the second half, despite valuations now trading around par.
Germany's upgrade leans on fiscal stimulus and revisions
In contrast, HSBC raised Germany to "overweight" from "neutral", citing potential for a business climate recovery from depressed levels, improving relative earnings-per-share revision momentum, easing valuations and the start of fiscal stimulus flow. Mixed positioning in Germany leaves room for global investors to add exposure, the broker said, noting the market has significantly underperformed the FTSE Europe index over the past 12 months.
Stoxx 600 forecast stays at 670
At the index level, the bank reiterated its Stoxx 600 forecast of 670 for year-end 2026, unchanged since January. Earnings expectations have been more resilient on a bottom-up basis, with the second quarter expected to be the strongest second quarter in three years.
Banks and industrials stay in favor
On sectors, HSBC said it continues to favor Banks amid higher-for-longer rates, potential for steeper yield curves and improving lending growth, with a preference for Italian and Spanish banks over UK and French lenders given higher policy risk. It also remains overweight Industrials, citing a multi-year capital expenditure cycle driven by infrastructure, defense and fiscal expansion, and overweight Utilities, linked to a structural capex upcycle tied to electrification and data-center demand.
By contrast, Consumer Discretionary remains "underweight," with autos particularly exposed to intensifying competition from Chinese carmakers.
Source: Investing.com
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