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A CHINESE SLOWDOWN COULD DISRUPT EUROPEAN EQUITIES' DOMINANCE LATER THIS YEAR, BOFA SAYS

European equities' blistering run to all-time highs could hit a speed bump later this year if Chinese growth slows, analysts at BofA write in a note.

Analysts at the Wall Street brokerage note that Purchasing Managers' Indexes (PMIs) around the world for the month of February paint a disappointing picture for global growth.

Global economic activity has appeared to stall this month, with euro zone PMIs noting very tepid growth this month, while the ones in the United States showed business activity nearly stalled amid mounting fears over import tariffs.

Assuming that if China PMIs - due over the weekend - remain stable, it would imply a 1-point decline for the global PMI to 51 - the bottom-end of the range seen since late 2023, according to BofA calculations.

Going forward, they anticipate the Chinese economy to slowdown significantly by the second quarter as the boost to export growth from front-loading ahead of tariffs hikes comes to an end, leaving them downright "negative" on European stocks in absolute terms.

According to BofA, resilience in global business activity had been one of the key drivers in European equities, though the scope for only slight upside for the Euro area PMI in the very near term "implies a negative shift in the fundamental factors that have supported the equity rally since late last year."

Despite the dour near-term forecast, BofA says that Europe's rally has left its price a little stretched relative but they still maintain, in relative terms, a "tactical overweight" stance for now.

Some China-exposed cyclicals such as chemicals and semiconductors have "over-discounted" the likely slowdown in China, which makes them attractive hedges in BofA's otherwise defensively skewed portfolio.

Europe has been attracting investors who seek an alternative to Wall Street's relatively expensive tech-heavy market, with STOXX 600's .STOXX near 10% year-to-date advance far outperforming the S&P 500 .SPX, which is almost flat YTD.

(Nikhil Sharma, Shashwat Chauhan)

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