BlackRock (BLK) has become less optimistic on European equities, saying higher energy prices and richer valuations have reduced the region’s appeal versus just a few months ago, the Financial Times reported.
Helen Jewell, international chief investment officer for fundamental equities at the asset manager, said Europe’s exposure to rising oil and gas costs could weigh on consumers and economic growth.
“It is difficult to be quite as bullish on Europe as we had been,” Jewell said to the FT, adding that the valuation discount to U.S. stocks has narrowed significantly.
European markets had attracted strong inflows earlier this year as investors looked beyond expensive U.S. technology shares. But sentiment weakened after the Iran conflict disrupted markets. The Stoxx Europe 600 (STOXX) fell sharply from pre-war levels, while the S&P 500 (SP500) recovered faster and returned to record highs.
Jewell said hopes that gains would spread beyond banks and defense stocks into sectors such as healthcare, luxury and industrials have faded. Those industries are now facing pressure from higher oil prices, elevated borrowing costs and softer consumer demand.“We are very nervous about the consumer as a whole,” she said, citing pressure from inflation and interest rates.
BlackRock recently increased its overweight stance on U.S. equities, reflecting stronger opportunities there and lower vulnerability to global energy disruptions.
Jewell said she still sees promise in select European sectors including defense, banks and semiconductors, but warned too much investor concentration in a handful of names could leave the broader market exposed to sharp selloffs.
Other strategists have also grown more cautious. Barclays said Europe remains vulnerable to external shocks, though increased government investment could improve the long-term outlook, the FT reported.
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