Investing.com -- JPMorgan has laid out its top six investment ideas in Europe over the next 12 to 18 months, highlighting a range of sectors it expects to benefit from structural and policy-driven shifts.
First, the Wall Street giant’s strategists, led by Mislav Matejk,a maintain a bullish stance on European defense, citing “increased Defense spending, where European countries are set to shift from an average 2% Defense spending as a share of GDP towards 3.5% later this decade.”
While the group’s valuations appear stretched after strong recent gains, the strategists believe “earnings will deliver” and continue to view the sector as a structural buy.
The second opportunity is linked to Germany’s €500 billion infrastructure fund, which JPMorgan expects to support names across construction materials, industrials, and transportation.
The fund, set to be spent over 12 years, is seen as a key fiscal stimulus driver. Stocks in JPMorgan’s “Germany Whatever It Takes” basket are viewed as well-positioned to benefit from the rollout.
The basket includes stocks such as Siemens (ETR: SIEGn ), UniCredit SpA (BIT: CRDI ), Rheinmetall (ETR: RHMG ), Vinci (EPA: SGEF ), Siemens Energy AG (ETR: ENR1n ), and dozens of other stocks.
JPMorgan’s third idea centers on financials. While tactically cautious on banks due to falling rates, the bank sees medium-term upside driven by improving balance sheets, credit flow recovery, and declining cost of equity.
Insurance is also favored, with analysts staying Overweight on this subsector in the medium term, despite short-term valuation concerns.
The fourth theme focuses on beneficiaries of lower energy prices, especially in the chemicals sector. JPMorgan highlights that “chemicals are the only one of the EM-exposed Cyclicals which are starting to perform less poorly,” and reiterates its overweight stance made earlier this year.
Utilities and Telecoms make up the fifth category. JPMorgan sees opportunities in stocks offering high dividend yields, benefiting from higher grid spending and cash flow improvements.
“Our analysts are positive on RWE (LON: 0HA0 ), National Grid (LON: NG ), and Engie SA (EPA: ENGIE ),” the note says, while Deutsche Telekom (ETR: DTEGn ) and Orange SA (EPA: ORAN ) are highlighted within telecoms.
Finally, JPMorgan sees value in German small caps. The MDAX index has lagged large caps for several years, but the bank believes the underperformance could reverse as fiscal stimulus and industrial exposure provide support.
“MDAX appears attractively priced relative to DAX and is underowned,” the strategists wrote.