• The global restart has broadened beyond the US and China, with Europe benefiting from a pickup in activity.
  • Accommodative policy and attractive valuations support the case for European equities. Despite recent positive sentiment and a pickup in flows, Europe remains under-owned in investor portfolios.
  • Investors seeking a more selective approach may consider differentiating their Europe allocation through country, sector, and factor index exposures, or through alpha solutions.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

We recently upgraded European equities to overweight on a tactical basis: we see Europe as being well-positioned to catch up with other regions, while tailwinds such as attractive valuations and accommodative policy should provide further support.
In this paper, we discuss the case for increasing allocations to European equities.


After a slow start, Europe’s vaccine rollout picked up speed in May, leading to an accelerating activity restart. Eurozone economic data and confidence indicators have remained robust, and earnings revision ratios are still improving in the region while stalling elsewhere. Our Fundamental European Equity team notes that alongside the supportive macro backdrop, attention has come back to company fundamentals after strong Q1 and Q2 earnings seasons that saw many companies deliver beats and upgrades. Rising virus cases could pose a risk, yet vaccines have so far proven effective against new variants and hospitalisations remain well below previous peaks. Should this continue, any rise in cases would likely be a temporary bump in the path of the overall restart.

We see European equities fulfilling multiple roles in portfolios. Investors can adopt a selective approach to access structural growth themes, adjust their factor tilts, or gain exposure to particular countries in Europe.

- Tech stands out:
The European tech sector has been the single largest contributor to returns for the region this year, due largely to its high exposure to semiconductors, which are benefiting from restricted supply and increased demand amid accelerated technology adoption.

- Facing fact(ors)
European equities were historically thought of as being a 'value' market, given an index composition that was heavily weighted to banks and 'old economy' industries. More recently, market structure has shifted, and quality characteristics such as high profitability and low leverage can help to balance out exposure to the value factor, potentially boosting portfolio resilience.

- Tour of Europe
We see France and Germany continuing to benefit from the broadening restart. France’s equity market is heavily tilted towards cyclicals, such as consumer discretionary stocks, which benefited from the cyclical rotation earlier this year and could continue to be supported as the restart broadens. German macro data has continued to come in strongly for both services and manufacturing, and German equities could be well positioned to benefit from policy support and improving restart dynamics. Peripheral eurozone countries like Italy could also present opportunities.

The Eiffel tower in Paris


Explore our latest whitepaper and discover our views on European equities.