Could Europe’s economy be turning a corner?


Despite ever-present political instability and security fears, coupled with uncertainty over how and when the European Central Bank (ECB) will act to boost economic growth, BNP Paribas Wealth Management has forecast a "European revival" in its 2015 investment strategy.

"We are confident in the capacity of the European stock markets to recover in the long-run, partly due to the fall in the euro," said analysts at the French financial institution in a report out Monday.

"Attractive opportunities are being created on the euro zone equity markets as the region transforms itself into a more integrated and more competitive region. Investors who accept that the journey might continue to prove bumpy can take exposure to an earnings catching-up story."

A trader sitting in front of a chart displaying German share index DAX.
THOMAS LOHNES | Getty Images
A trader sitting in front of a chart displaying German share index DAX.

European stocks, particularly those from euro zone countries, have had a wobbly start to the year. The STOXX 600—which covers European stocks from both inside and outside the euro zone and European Union—is down around 1.2 percent since the start of 2015, while the Euro STOXX 50—which tracks stocks across 12 euro zone countries—has fallen by a steeper 3.3 percent.

Markets are jittery in part because of Greece's upcoming national elections on January 25 which could push the country out of the euro zone and of the ECB's policy meeting this month, amid rumors that central bank President Mario Draghi could finally announce a U.S. Federal Reserve-style quantitative easing program.

Read MoreGreece in 'critical' situation as Syriza leads polls

"The euro zone needs the continued strong support of the ECB to make progress. Even more, it needs either countries to implement the reforms they have promised (Spain, Portugal and Greece) or the laggards (France and Italy) to go ahead with adopting and then implementing reforms," said BNP Paribas.

Similarly to BNP Paribas, Oxford Economics forecast euro zone stock markets would rise this year, posting similar gains to Wall Street, supported by an improving regional economic outlook and more ECB stimulus.

"Policy has become much more supportive since the summer, allowing monetary growth to recover to its former 'reference value' of around 4.5 percent (on a 6-month annualised basis)," said Adam Slater, senior economist, in a forward-looking Oxford Economics report published at the end of last year.

Symbol
Name
Price
 
Change
%Change
Volume
FTSE
---
DAX
---
CAC
---
IBEX 35
---

Meanwhile, HSBC is overweight on European equities for 2015 and underweight U.S. stocks.

"Profit margins are near record highs in the U. S., but elsewhere in the world they have been contracting for a number of years," said HSBC strategists in a lookahead report last month.

"With a gradual pick-up in economic growth, subdued wage costs and falling raw material prices, 2015 could be the year where margins finally recover. Our top-down models point towards a rebound in both Europe and emerging markets; this is also the message from many of our analysts' previews."

Read MoreWall Street's cautious stock calls for the year

The single currency has continued its 2014 declines so far this year, on the back of quantitative easing expectations in the euro zone. BNP Paribas said euro weakness was needed for the "revival" to materialize, as it allowed euro zone's companies to benefit from the stimulus to foreign sales.

"A euro that stays or becomes even weaker is another key condition necessary for the European renaissance theme not being delayed," the bank said.