Oil prices fall, opening a window of opportunity. JPMorgan Chase calls for a return to the "forgotten" European stock market.

As tensions in the Middle East geopolitical situation show signs of easing, two seasoned strategists from J.P. Morgan Asset Management have coincidentally turned bullish on the European stock market this week, believing that the significant drop in oil prices is creating a rare opportunity for long-term undervalued European markets. Karen Ward, Chief Market Strategist for Europe, the Middle East, and Africa at J.P. Morgan Asset Management, bluntly stated in an interview in Zurich on Wednesday: "I am very bullish on Europe, and precisely because almost no one agrees with my view, it only makes me more convinced that I am right." In her view, the deep-rooted aversion towards European stocks among investors is creating a buying opportunity. With tensions in Iran gradually easing and oil prices further falling, "the story belonging to Europe is about to truly unfold." This geopolitical turning point has made substantial progress. On Thursday, with US President Trump signing a temporary ceasefire agreement with Iran and pushing for the reopening of the Strait of Hormuz, crude oil prices are close to falling back to the low levels at the beginning of the conflict. Hugh Gimber, Global Market Strategist at J.P. Morgan, also emphasized that the temporary peace agreement between the US and Iran is cooling the market, saying, "it feels like we are at a turning point," and beneath the calm surface of stock indices, selective investment opportunities are emerging. From AI concentration to value dispersion, where should funds flow to Europe? Regarding the allocation direction, the two strategists gave similar answers. Ward pointed out that since the artificial intelligence (AI) sector has accumulated significant gains in the US and Asian markets, the global market overall is no longer cheap, and investors are facing two fundamental questions: "Where is there still room for growth? And how to diversify risk from the overly concentrated tech stocks? Europe is the answer to these two questions." She expects a wide-ranging benchmark valuation reassessment for the European market, especially favoring sectors that can participate in the "global industrial upturn," specifically including finance, industry, and chemical stocks; at the same time, she expressed cautious views on some traditional automotive and pharmaceutical giants. Gimber also favors European banking and chemical sectors, believing that with a steepening yield curve, bank stocks "still have further room to rise," and energy-intensive chemical companies are expected to significantly benefit from the recent reversal of oil price shocks. Additionally, he pointed out that in the context of falling oil prices, consumer-facing stocks and energy-sensitive cyclical stocks are also showing value opportunities. Their optimistic outlook is not an isolated case. Several Wall Street institutions have changed their strategies this week: Barclay's strategist raised the year-end target for the European Stoxx 600 index to 670 points on Wednesday, indicating about 5% upside potential from the current level, believing that falling inflation will provide momentum for lagging consumer cyclical stocks; the Global Equity Derivatives Strategist of Bank of America stated that as the "fog of war" dissipates, investors may shift from highly concentrated AI trading to relatively cheap and generally underweighted European stocks for diversification; Deutsche Bank even revoked its preference for US stocks over European stocks on Monday. Macroeconomic tailwinds: "overpriced" rate hike expectations for the ECB At the macro policy level, Gimber also believes that the market's pricing for the European Central Bank's future rate hikes is "overpriced," which may provide an additional window of respite for risk assets. He stated: "If the theme for 2025 is embracing global diversification, then now that we can finally start thinking 'the worst shocks are behind us,' I see no reason not to continue this trend." It is worth noting that due to the European stock market almost consistently underperforming the US in the past decade, clients are still hesitant about the timing of the rebound. Ward admitted that many clients still refuse to be optimistic about Europe citing "structurally lack of growth," and frequently quote the famous report on European competitiveness by former ECB president Draghi. However, she pointed out that Draghi's blueprint itself includes a plan for annual investments of 1.2 trillion, focusing on digital technology, clean energy, and defense. If these reforms are truly implemented, it will undoubtedly provide long-term fuel for the widespread reassessment of European assets.