Citigroup analysts have turned more positive on European equities, and have set an 8000 target for the FTSE 100 by the end of 2014, a near 25% potential gain.
Its prediction for the middle of next year is 7500, compared to the current level of 6609. The bank said risk was falling, citing a number of factors: there was now less chance of a eurozone break-up; banks were strengthening their balance sheets; and earnings downgrades were ending:
We stay bullish on UK and European equities over the coming 12-18 months: 1) better macro, 2) better earnings, 3) rising risk appetite. There may be better near-term entry points, but we see healthy 25% returns to the end of 2014.
In Europe, we expect a GDP and earnings inflection in 2014 versus 2013. Negative GDP and earnings growth to be replaced by positive growth, in our view.
But there were still some risks, notably the US Federal Reserve tapering its bond buying programme, a slowdown in emerging markets, and high debt levels in developed markets.
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