HSBC Lifts STOXX 600 Target to 680, Projects 20% Upside by 2027

HSBC has upgraded its outlook for European equities, raising its 2026 year-end target for the pan-European STOXX 600 index to 680 from 670. The bank also initiated a 2027 year-end target of 760, signaling a potential upside of approximately 20% over the long term.

Rationale Behind the Upgrade

The revised forecast, which marks HSBC's first target increase for the index this year, implies a 7% upside from current levels through the end of 2026. According to the bank, the more optimistic stance is driven by expectations for both earnings-per-share (EPS) growth and a valuation re-rating for European stocks.

HSBC's updated framework incorporates changes to its forecasts for EPS growth, business sentiment, and gross domestic product (GDP). The bank noted that while 49% of European company revenues come from overseas, domestic revenue exposure has climbed to 51.2%, its highest point since 2017. Currency movements remain a key factor, with HSBC estimating that a 5% depreciation in European currencies against the U.S. dollar could add around 3.1 percentage points to regional EPS growth in 2026.

Country and Index-Specific Calls

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While HSBC left its overall sector weightings unchanged, it adjusted its country-level recommendations:

• Italy upgraded to Overweight: This move is supported by stronger GDP expectations, improving EPS momentum, and the country's lower reliance on Middle Eastern gas and LNG.
• France downgraded to Underweight: The downgrade reflects weaker macroeconomic forecasts, deteriorating consensus expectations, and sustained pressure on consumer discretionary stocks.

Looking at the UK market, HSBC highlighted the potential in mid-cap stocks. The bank noted that the FTSE 250, despite a strong rebound, remains 25% below its 10-year average on a forward price-to-book basis. Analysts expect earnings leadership to shift toward mid-caps in 2027, forecasting 14% EPS growth for the FTSE 250, compared with just 5% for the large-cap FTSE 100.