European equities are estimated to outshine the United States in the first half of 2024, after overcoming some near-term headwinds, according to strategists, as quoted on CNBC. Positive economic data, moderating inflation levels and the European Central Bank (ECB) finally adopting a dovish stance paint a rosy picture for investments in the EU.

Reasons for the Bullish Sentiment

According to Maximilian Uleer, head of European equity and cross-asset strategy at Deutsche Bank, a reason to be bullish on EU’s outlook is the rise of the surprise indices while a simultaneous decline in the surprise indices of the United States, as quoted on the CNBC article. Surprise indices measure by how much economic data beat or miss forecasts.

Deutsche Bank's Uleer cites an upcoming hunt for relative value trades as a bullish factor for Europe. Stocks, trading at a historic discount to the United States, offer first-half opportunities before leveling out in the second half. Europe's stocks have a long record of being significantly cheaper than their counterparts in the United States.

Ankit Gheedia, head ofhead of equity strategy at BNP Paribas, as quoted on CNBC, had the same belief as Maximilian Uleer, forecasting Europe securities to surpass U.S. performance the next year.

Optimistic STOXX 600 Forecasts

The Europe Stoxx 600 currently sits at a level of 478.73, surging about 7.65% since the beginning of November. According to Citigroup, as quoted on Reuters, the pan-Europe benchmark index is estimated to reach 510 points by the end of 2024, suggesting a hike of about 6.55%.

As per analysts of Goldman Sachs, as quoted on forexlive, the European STOXX 600 Index is forecast to reach a level of 500, driven by expectations of lower interest rates from the European Central Bank (ECB).

Interest Rate Cuts by ECB

On Thursday, Dec 14, ECB kept its rates unchanged with ECB President Christine Lagarde emphasizing that borrowing rates would persist at record levels, despite downward revisions in inflation forecasts, according to Reuters. The European Central Bank countered expectations of imminent interest rate cuts by focusing on fears of price pressures remaining strong.

Although an imminent rate cut might not be possible, the ECB is expected to cut interest rates in 2024. According to macroeconomic projections by the European Central Bank, inflation is estimated to decline gradually over the next few years, with ECB’s monetary policy driving headline inflation down from 5.4% in 2023 to 2.7% in 2024.

According to Deutsche Bank, as quoted on Reuters, the ECB is estimated to cut interest rates by 1.5% in 2024 due to moderating inflation levels. Deutsche Bank has upwardly revised its current estimation by 0.5% from its previous forecast.

ETFs in Focus

According to Reuters, EU's new agreement relaxes insurer capital rules, potentially allowing the insurance sector to invest around $108.82 billion into the economy.

Below, we mention a few funds to for investors to increase their exposure in Europe and capitalize from the momentum of the region.

Vanguard FTSE Europe ETF (VGK Quick QuoteVGK - Free Report) – has gained about 18.81% year to date

iShares MSCI Eurozone ETF (EZU Quick QuoteEZU - Free Report) – has gained about 23.03% year to date

JPMorgan BetaBuilders Europe ETF (BBEU Quick QuoteBBEU - Free Report) – has gained about 19% year to date

iShares Core MSCI Europe ETF (IEUR Quick QuoteIEUR - Free Report) – has gained about 18.33% year to date

SPDR EURO STOXX 50 ETF (FEZ Quick QuoteFEZ - Free Report) – has gained about 26.95% year to date