By Alistair Smout

By Alistair Smout

LONDON (Reuters) - European shares are expected to rise steadily in 2017, but analysts are cautious over possible shocks after a series of unexpected political upsets raised volatility this year.

A Reuters poll of strategists, brokers and analysts taken over the past week predicts a rise of around 5-6 percent for the STOXX 600 <.STOXX> and Euro STOXX 50 <.STOXX50E> in 2017.

However, after a tumultuous year featuring shock results in both Britain's referendum on European Union membership and the U.S. presidential election, neither index is expected to fulfil earlier predictions for gains in 2016, nor are they seen regaining 2015's all-time highs next year.


Political uncertainty remains a key worry, with elections due in France and Germany and concerns over leadership in Italy after Prime Minister Matteo Renzi lost a referendum on Sunday on constitutional reform, as well as how Britain will proceed with leaving the European Union.

Italian banking stocks have been particularly volatile as the government seeks ways to prop up its ailing lenders.

Yet for all that, the polls reflected a broadly unchanged set of expectations from October's poll.

While many had predicted the surprise election of political novice Donald Trump as president would hinder markets, it has actually boosted growth and inflation expectations, helping cyclical stocks.

"For the moment, the reflation narrative seems strong and any evidence that the Trump plan is not working may not be available until 2019," said Russ Mould, Investment Director at AJ Bell, who said it was unwise to bet against the momentum of the market in 2017.

"(However), the downside risks have grown and the upside potential receded."

The STOXX 600 is expected to hit 350 by mid-2017 and to be at 366 by the end of the year, slightly higher than predicted in the last poll in October.

For the Euro STOXX 50 <.STOXX50E>, the index is expected to reach 3,255 by the end of 2017, again similar to predictions made last quarter.

Both indexes are down over 5 percent this year, confounding predictions for double digit percentage point rises, as both have struggled to recover to pre-Brexit referendum levels.

Italy's FTSE MIB <.FTMIB> was expected to drop to 17,155, a 3 percent fall from current levels, by the middle of 2017.

Italian stocks are set to suffer from political uncertainty after Renzi said he would resign following his referendum defeat.

While it has rallied off post-referendum lows, the FTSE MIB remains down around 17 percent this year. The index was expected to recover to 18,000 by the end of 2017, up just 1 percent from Tuesday's 17,757.80 close.

Germany's DAX <.GDAXI> and France's CAC <.FCHI> are seen rising 6 percent and 7 percent respectively by end-2017, with elections seen as possible causes of volatility.

"The wave of anti-establishment voting poses a big threat to Europe in 2017 given the elections that will take place in Germany, France and the Netherlands, and now more than likely Italy as well," said Craig Erlam, market analyst at OANDA.

"Further disintegration in Europe could spell the beginning of the end for the euro zone project and leaders will have to work hard to ensure the year passes without any further mishaps."

(Editing by Ross Finley and Alexandra Hudson)

Latest From ...