HSBC, one of Europe's largest banks, has turned more optimistic on European equities, lifting its year-end targets for two of the region's key stock benchmarks. The bank now expects the pan-European STOXX 600 index to finish the year at 680, up from its previous target of 670, and has raised its call on the UK's FTSE 100 to 11,390.
The move reflects a belief that European companies are entering a period of stronger earnings growth, helped by a steadier economic backdrop and improving business sentiment. For everyday investors, the revised targets suggest that, in HSBC's view, there is still room for European stocks to climb from current levels.
What the new targets mean
The STOXX 600 tracks the performance of 600 large, mid-sized and small companies across 17 European countries, making it a broad measure of how the region's stock markets are doing. The FTSE 100, meanwhile, is the UK's flagship index, made up of the 100 largest companies listed in London.
HSBC's new STOXX 600 target of 680 implies roughly 6.3% upside from where the index has been trading recently, according to Reuters. The bank also set a target of 760 for the end of next year, suggesting it expects the rally to continue into 2026.
The bank's optimism is underpinned by its forecast for European corporate earnings growth of 15.6% in 2026 and 15.4% in 2027. That is a notable acceleration and points to a belief that companies in the region will see profits rise at a healthy clip over the next couple of years.
Why HSBC is more upbeat
One factor behind the brighter outlook is that European companies are increasingly relying on their home markets. HSBC notes that regional revenue exposure for European firms is at its highest level since 2017. That means companies are generating a larger share of their sales from within Europe, which can make them less vulnerable to global trade tensions or slowdowns elsewhere.
This shift toward domestic revenue could be a defensive advantage. If global trade becomes more uncertain, companies with strong local demand may be better positioned to maintain earnings growth. It also suggests that the European economy itself is providing a solid foundation for corporate profits.
The bank's more positive stance comes at a time when European markets have been moving higher, helped by falling oil prices and hopes that central banks may ease monetary policy. Investors have been watching economic data closely for signs that the region can sustain its recovery.
What it means for investors
For ordinary investors, HSBC's revised targets are a signal that at least one major bank sees further gains ahead for European stocks. However, it's important to remember that such forecasts are just one institution's view, and markets can move in unexpected ways.
Index targets are not guarantees. They are based on assumptions about earnings, interest rates and the broader economy, all of which can change. Still, when a large bank raises its targets, it often reflects a genuine improvement in the underlying fundamentals.
Investors with exposure to European equities through index funds or exchange-traded funds (ETFs) may take comfort from the upgraded outlook. Those without such exposure might consider whether European stocks fit into their broader diversification strategy, but any decision should be based on their own financial goals and risk tolerance.
The bank's focus on earnings growth is worth noting. Ultimately, stock prices tend to follow corporate profits over the long run, so a forecast of stronger earnings is a positive sign for the region's equity markets.
That said, risks remain. Global trade tensions, such as the upcoming Trump-Xi summit, could weigh on sentiment. And while oil prices have been slipping, any renewed spike in energy costs could hurt consumer spending and corporate margins.
For now, HSBC's message is clear: it believes European stocks have more room to run. Whether that proves correct will depend on whether the region's companies can deliver the earnings growth the bank expects.
