European equities are staging a comeback. Up 15% year-to-date, the MSCI Europe is well ahead of its US counterpart, the S&P 500, which has returned just 6% over the same period (data to 31 October 2025 in EUR terms). Investment flows have started to follow European performance, but this shift remains in its early stages. Global portfolios are still heavily tilted toward the US, with the MSCI World Index showing a near-record 72% weighting in American stocks.
But with European returns consistently leading through the year, the case for a more balanced allocation is becoming harder to ignore. Even US policymakers have acknowledged the end of ‘American exceptionalism’, with US Secretary of State Marco Rubio referring to America’s stretch of unchallenged dominance as “an anomaly”. Investors who continue to view the world through a US-centric lens risk missing what’s happening across the Atlantic: Europe is rebounding with renewed momentum, policy support, and far more attractive valuations.
Valuations still matter
When daily news flow includes the latest advancements in AI and the coming of singularity, valuations typically don’t cut it in terms of flashy headlines. But they are often the key to driving long-term returns. Most investors focus on what have been great companies or great performers, because they have a wonderful story to tell. But what really differentiates performance is what you pay for an investment. With Europe trading at a steep discount to the US on earnings multiples, the margin of safety looks far stronger on this side of the Atlantic.
Markets have also moved beyond the peak of tariff-related uncertainty. The range of potential outcomes has narrowed, giving companies greater visibility on how to plan and invest. This stabilisation – combined with improving confidence and more predictable policy – could prove a tailwind for a broad range of European sectors, not just headline-grabbing ones such as defence.
The contrarian advantage
The next phase of the cycle may reward investors willing to be contrarian. Valuations in parts of the US market now exceed 20x earnings – a level that leaves limited upside. Diversification and selectivity will be key to navigating the next stage. In Europe, the opportunity set remains wide – from beaten-down sectors and overlooked countries, to world-leading businesses that showcase Europe’s depth of innovation.
Sometimes the greatest opportunities are hiding in plain sight. Europe’s small and mid-cap companies combine world-class innovation with disciplined balance sheets and an improving macro backdrop. After a decade of US dominance, believing in Europe could once again prove the more rewarding call.
European Equities
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EUROPEAN EQUITIES
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