The beleaguered euro zone economy is set for a comeback this year, and that should drive stocks in the region higher by up to 10 percent in the coming weeks, analysts told CNBC.
According to Laura Fitzsimmons, vice president of futures & options at JPMorgan Investment Bank, continued positive economic data combined with the central bank's dovish stance will boost European equities, the laggards of the global stock markets this year.
"You've got all the ingredients for a decent bounce to continue in euro zone stocks," said Fitzsimmons. "With the improving euro zone outlook and a European Central Bank which is in highly accommodative mode, I think we can realistically expect further gains of around 5-10 percent in euro zone indices over the coming weeks."
The euro zone economies have been struggling with a crippling sovereign debt crisis for the past few years, and stock markets have fallen in tandem. The FTSE Eurofirst 300 index only saw a meager 6.5 percent gain so far this year, in stark contrast major indices like the Japan's Nikkei and the S&P 500, which are up 30 percent and 18 percent, respectively.
But recent data have been encouraging. Last week, private sector firms in the region reported a rise in output for the first time in 18 months, reflected in the euro zone's purchasing managers index which rose to 50.4 in July, from 48.7 in June, fueling hopes that the battered down region had turned a corner.
"The first half of the year was about Japan and also the U.S. to an extent," said Fitzsimmons, referring to the huge stock rallies seen in the two markets. "For us the focus now has become Europe. We do actually see a fair amount of upside in terms of our economic forecasts for the euro zone region," she said.
JPMorgan forecasts 0.5 percent growth in the third quarter of 2013 from the previous quarter, and a 1 percent quarter-on-quarter growth in the fourth quarter. This contrasts with a 0.2 percent on-quarter contraction seen in the January-March period this year. Other analysts also told CNBC they were starting to turn upbeat on the euro zone.
"We are now potentially entering an age where the US, EU and Japan are starting to grow again that hasn't happened in a really long time," said Tom Essaye, president of US commodities trading firm Kinsale Trading. "If that occurs I think commodities are of value here and you can outperform if you allocate to them in that scenario," he added.
JP Morgan's Fitzsimmons also said the uptick in the euro zone would likely provide a strong boost for investor sentiment in the rest of the world as well, including Asia. She highlighted South Korea as one specific region in Asia likely to get a boost from increased export appetite in Europe.
"That lift in global sentiment, which will come from a more stable euro zone, will clearly help going forward [towards lifting global sentiment], particularly for countries like Korea," she said.
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