European shares are set to extend their brisk rally this year as the European Central Bank's massive asset-buying scheme and a weakening euro help revive economic growth and corporate profits, a Reuters poll found. The survey of around 50 fund managers and strategists conducted in the past week predicted the pan-European STOXX Europe 600 index would rise more than 6 percent from current levels to 425 points by the end of 2015.
The euro zone's blue chip Euro STOXX 50 index, home of bellwethers such as Anheuser-Busch InBev, the world's largest brewer, and LVMH, the world's No 1 luxury goods maker, is expected to rise nearly 5 percent by the end of 2015, reaching 3,900 points.
European stocks have risen sharply since January as global investors increased their exposure on expectations the slide in the euro would give companies a major lift as roughly 50 percent of euro zone earnings come from outside the region.
The STOXX 600 is up almost 17 percent year-to-date, set to record its strongest first-quarter performance since 1998 and one of the best performances among all major asset classes globally.
"For the euro zone, which is the biggest exporting region in the world, such a drop in its currency is extremely positive, and the market has not yet fully priced this in," said Alain Bokobza, head of strategy, global asset allocation at Societe Generale.
Strategists said a drop of 10 percent in the euro versus a basket of currencies will translate into a 6 to 8 percent rise in European profits. With the euro down about 16 percent against the other currencies over the past year, profits are poised to get a 10-13 percent boost.
The improving earnings trend in Europe is prompting global investors to boost their exposure to the region. According to Bank of America Merrill Lynch, Europe equity funds have enjoyed $46.6 billion in net investment inflows so far this year, while US equity funds have suffered net outflows of $44 billion. Societe Generale's Bokobza said further brisk inflows into Europe are expected in the coming years.
"Because of fears surrounding the euro zone debt crisis in the past few years, investors have been extremely 'underweight' Europe. We could see another $100 billion coming into the next two to three years, and that would only bring European flows to 2007 levels," he said.
However, fund managers and strategists warned that while the ECB remains very accommodative and the lower euro helps revive profit growth, the prospect of an interest rate rise by the US Federal Reserve in 2015 is set to create turbulence in European stock markets.
"The timing of the first hike in the Fed fund rate and its impact on the trend in global government bond yields will be a big factor in the coming months," said Patrick Moonen, senior strategist at ING IM.
The latest Reuters poll sees France's CAC reaching 5,350 points by end-2015, up over 5 percent from Monday's close, while Germany's DAX is seen rising to 12,600 points by end-2015, up 4 percent from Monday's close.
Spain's IBEX is set to reach 12,000 points by the end of this year, while Italy's MIB is seen climbing to 24,500 points, with the two benchmark indexes respectively up 4 percent and 5 percent from Monday's close.
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