European shares to end 2018 short of January highs: Reuters poll

By Julien Ponthus and Helen Reid

LONDON (Reuters) - European shares will stage a recovery in what remains of 2018 but fail to push past their January highs, ending the year with a meagre gain and with too little momentum to achieve a better performance in 2019, a Reuters poll showed.

European and euro zone indices have largely still not recovered from a correction across global markets in early February when volatility skyrocketed.

The pan-European STOXX 600 <.STOXX> benchmark index is expected to reach 400 points by year-end, according to the poll of 30 brokers, fund managers and analysts, up 3.5 percent from Wednesday's close and 2.8 percent higher on the year.

An index of 50 leading euro zone companies <.STOXX50E> is expected to reach 3,575 points by year-end, up 3.4 percent from Wednesday's close and 2.0 percent on the year.

The poll was taken in Aug. 20-28 as U.S. stocks marked the longest-ever bull run, the second-quarter earnings season ended and the tone of trade disputes softened with the U.S. and Mexico reaching an agreement.

But the forecast was weaker than in a May poll, which saw the STOXX 600 reach 406 points, a reflection of a turbulent summer during which a crisis in Turkey's lira spread across global markets.

The poll predicted the STOXX 600 won't exceed its late January peak of 403.7 points until 2019, ending that year at 410.

Despite sharp day-to-day moves in stocks and across indices, the market has not managed to climb convincingly and consistently, and this is likely to continue, investors said.

"We see the volatile, lowish-return, equity market conditions of the year so far as being a good guide to what lies ahead," said Paul O'Connor, head of the multi-asset allocation team at Janus Henderson Investors.

Multiplying global trade disputes are weighing on European markets, home to many of the world's top exporting companies heavily reliant on smooth international trade.

Since the previous poll the U.S. and China have implemented tariffs on $50 billion worth of each others' goods and threatened further levies.

"Many investors were thinking about the Trump administration's economic agenda in quite simplistic terms at the start of the year, loving the tax cuts and ignoring the problems," said James Dowey, chief investment officer and chief economist at Neptune Investment Management.

"That's changed now the trade war has kicked off and given the markets a bit of a reality check."

EARNINGS SUPPORT RECOVERY

A still-strong outlook for corporate earnings is likely to help boost the region's stocks into year-end, and euro zone exporters will benefit from the euro's slide this year.

"Whilst economic momentum has been gradually moderating this year, notably in Europe, the corporate outlook remains positive which should support stocks despite political risk stemming from risks of a trade war," said Edward Park, investment director at Brooks Macdonald in London.

The investment team at Optimus Capital said earnings have not yet peaked in Europe, pointing out the Euro STOXX <.STOXXE> is still a way from surpassing its pre-crisis earnings-per-share expectations peak.

"Considering the current phase of the EU's economic cycle, healthy demand, a weakening euro and the fact the ECB will not raise rates until, at least, the second half of next year, there is still room for growth," said Dimitrios Stefanopoulos, portfolio manager at Alpha Trust in Athens.

(Additional polling by Indradip Ghosh and Kit Rees, editing by Andrei Khalip)