Morgan Stanley expects the rally in the energy sector in Europe to continue

Analysts at Morgan Stanley raised their assessment of the European energy sector from "at market level" to "attractive", pointing to its potential, Bloomberg writes.

According to analysts of Morgan Stanley, investors only begin to take into account in quotations the structural change of risks connected with energy supplies on the background of war in the Middle East. And although price shocks associated with rising oil and gas prices, accelerate inflation, contribute to the growth of interest rates and put pressure on economic growth and the stock market as a whole, - on the other hand, these same conditions, as a rule, play in favor of energy companies, analysts at Morgan Stanley led by Martijn Raths drew attention. The situation, according to their estimates, will have to support quotations of European energy companies.

The divergence in dynamics between the broad European equity market and the energy sector can already be traced since the beginning of the war in Iran, analysts say: the Stoxx Europe 600 index has fallen by 8.6% since the end of February, while its sectoral energy subindex added 10%, notes Bloomberg. Morgan Stanley notes that despite the risks of correction after the rally, the macroeconomic situation is still favorable to energy compared to other sectors.

In trading on March 25, the Stoxx Europe 600 Index added 1.6%. Its energy subindex - Stoxx 600 Energy Index - gained 0.36%.

However, Morgan Stanley analysts are confident: "The recent outperformance is not yet exhausted. The market is just beginning to build into prices long-term changes in energy security, available reserve capacity and the cost of reliable supplies".

On March 25, the international benchmark Brent was down 6.2% to $98 per barrel, while U.S. West Texas Intermediate (WTI) was down 6% to $86.8 per barrel. At the time of publication, May futures for Brent are worth about $100, contracts for WTI - $88.5. Such dynamics oil quotes demonstrate such dynamics on the background of statements of US President Donald Trump on negotiations with Iran, notes CNBC. According to him, the U.S. and Iran are "negotiating right now," and Tehran is interested in reaching a peace agreement (while the Iranian authorities themselves deny the fact of direct contacts with Washington). According to Bloomberg and The New York Times, Washington has sent Tehran a 15-point plan to resolve the conflict.

However, not all analysts are positive about the prospects of European shares. On March 24, UBS downgraded eurozone securities because of oil risks. The bank warns: because of the strong dependence of European countries on energy from the Middle East region, if the conflict between the U.S., Israel and Iran drags on, the eurozone stock market may become the main victim of rising oil and gas prices. UBS revised its rating on European equities to "neutral".

This article was AI-translated and verified by a human editor