By Julien Ponthus and Danilo Masoni
LONDON/MILAN (Reuters) – European shares will end 2018 just ahead of their January peak, recovering from current levels as a resilient economy gradually overcomes a temporary slowdown and corporate earnings continue to rise, a Reuters poll showed.
The poll was taken May 15-30, largely before a mounting political crisis in Italy sparked worries over a possible breakup of the euro zone, triggering a heavy sell-off in Italian assets.
The pan-European STOXX 600 <.STOXX> benchmark index is expected to reach 406 points by year-end, according to the poll of 29 brokers, fund managers and analysts, up 5.6 percent from Tuesday’s close and 4.3 percent on the year.
That will be enough for the index to surpass a 29-month high of 403.7 points it reached in January.
Euro zone blue-chips <.STOXX50E> are expected to rise a bit further, up 7.9 percent from Tuesday’s close to 3,700 points, according to the median of 37 responses.
Prospects for European shares faded at the beginning of the year as economic growth slowed more than expected, raising concerns there will be no return to boom.
But analysts were optimistic economic activity should be robust enough to modestly prop up shares and company earnings.
“For now, synchronized economic expansion, solid earnings growth and still relatively low volatility levels look supportive for global equity markets”, Deutsche Asset Management analysts said.
According to Thomson Reuters IBES estimates, earnings for STOXX 600 companies are expected to grow 8.7 percent in 2018 on revenues up 5.1 percent.
A majority of investors in Europe answered “yes” when asked if they thought global stocks would continue to rise in 2018.
Among the risks identified by investors are Italy, Brexit talks, a U.S.-China trade war, oil prices surging above 100 dollars a barrel or international tensions involving Iran or North Korea.
“The economic picture stays positive but political risks are the top concern,” said Tomas Hildebrandt, senior portfolio manager at Evli Bank in Helsinki.
A faster-than-expected acceleration in U.S. inflation and interest rates is also seen as a threat after a rise in American wages took the market by surprise in February.
With the current rise in the dollar, investors said they believed the biggest risk of a sell-off was in emerging markets, where returns looked less attractive given rising U.S. government bond yields.
(Reporting by Julien Ponthus, Kit Rees and Helen Reid in London, Danilo Masoni in Milan and Indradip Ghosh and Mumal Rathore in Bengaluru; editing by Andrew Roche)