By Sophie Kiderlin
LONDON, Feb 24 (Reuters) - After a strong start to 2026, European shares are expected to end the year just a touch higher following a mid-year pullback, a Reuters poll found, as investors navigate an uncertain geopolitical environment and the developing artificial intelligence trade.
The pan-European STOXX 600 index is forecast to rise to 640 points by end-2026, according to the median expectations of poll respondents, up from the previously forecast 623. That implies a 2% gain from Monday's
close of 627.7.
So far in 2026, the STOXX 600 has risen about 6% and trades close to a record high as investors have looked beyond the U.S. for investment opportunities given policy unpredictability and rising geopolitical tensions.
"Despite many wild cards that are likely to cause more choppiness we believe the path of least resistance remains higher equity markets for now," said Barclays European equity strategist Magesh Kumar Chandrasekaran.
However, respondents were split regarding the likelihood of a pullback in their local stock markets, with around 53% saying a correction was likely in the next three months.
"A mild pullback is the most probable near-term outcome, given market positioning and macro uncertainty," said Andreas Lipkow, chief market analyst at CMC Markets.
Geopolitical uncertainty has already been a major market driver with tensions over Greenland resurfacing, conflicts in Ukraine and Gaza and an escalating standoff between the U.S. and Iran.
Markets have been weighing up the potential fallout on inflation levels should oil prices rise due to Middle East turbulence.
Tariff turmoil has also reignited in recent days after the Supreme Court struck down many of U.S. President Donald Trump's levies last week, to which he responded by announcing new duties. The poll was conducted before the ruling.
The regional blue-chip benchmark index, the Euro STOXX 50, is similarly expected to pull back from its current level of around 6,113.92 to 6,011 by mid-2026 before closing out the year at 6,200, the poll showed. This would mark an annual rise of over 7%.
U.S. VS EUROPE
So far, 2026 has also been marked by renewed discussions around the "Sell America" investment theme and diversification away from U.S. assets, given uncertainty over Washington's policies.
While high risk premiums should benefit equities outside the U.S., earnings growth and dominance in the tech and AI sectors provide U.S. markets with structural support, analysts say.
AI trading has been a core theme in markets this year amid fears about the impact of improving generative AI technology on software companies but also concerns over companies increasing spending.
Questions have emerged about how markets in different regions will be impacted by the fast-evolving sector.
Capital Economics' markets economist Joe Maher pointed to the U.S.' greater exposure to AI as one factor driving the view European equities will underperform.
Allianz Global Investors meanwhile noted that while Europe was significantly less exposed than the U.S. to sectors directly enabling AI, "the MSCI Europe index is also less exposed to segments where AI-related disruption could pose risks."
The majority of those polled by Reuters said their view on AI driving stock market performance was broadly comparable with that held three months ago.
AI-related spending plans were seen critically by some. Tomas Hildebrandt, senior portfolio manager at Evli Bank, warned they "could lead to a self-harming loop where operational bottlenecks appear, prices skyrocket and the profit margins melt down."
(Other stories from the Reuters Q1 global stock markets poll package)
(Reporting by Sophie Kiderlin, additional reporting by Samuel Indyk and Danilo Masoni; additional polling by Sarupya Ganguly and Renusri K; editing by Amanda Cooper and Tomasz Janowski)
