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Worldwide financiers are channeling unparalleled capital into European stocks. This surge is driven by a twin impetus: a wish to diminish their holdings in the US and burgeoning confidence regarding the continent’s economic health.
European shares are on track for their most substantial monthly capital influx ever in February. This follows two consecutive weeks where inflows reached approximately $10 billion, based on figures from EPFR, a firm that monitors ETF and mutual fund movements.
This month, the continent’s flagship Stoxx Europe 600 index has broken through a succession of all-time highs, a trend mirrored by benchmarks in the UK, France, and Spain. European exchanges have reaped rewards from large investors’ drive to broaden their portfolios, moving away from Wall Street and its colossal technology segment, which has faced headwinds this year due to apprehension about a prospective AI bubble.
“Many global investors are looking to diversify away from an expensive US market,” stated Sharon Bell, a senior equities strategist at Goldman Sachs. She highlighted that this trend was notably evident among US-based investors exploring international opportunities. Bell further explained, “Europe, as a stock market, provides a different type of exposure . . . it has less of a tech concentration.”
A pivot in market leadership, away from the colossal AI firms, has invigorated European markets, thanks to their significant allocation to ‘old economy’ sectors like banking and raw materials. This year, the burgeoning demand for tangible assets has propelled the UK’s FTSE 100 nearly 7 percent higher, with individual shares such as Weir Group and Antofagasta seeing gains of over 20 percent.
A substantial amount of capital has been channeled into investment vehicles with exposure to non-US markets, rather than those solely concentrating on Europe. This trend is fueled by concerns that international portfolios have grown excessively reliant on high-priced, AI-associated equities.
This portfolio diversification has driven many other global markets to outperform Wall Street this year. In fact, the S&P 500 index currently holds the 76th position out of 92 major benchmarks tracked by Bloomberg for the current period.
“Broadening one’s exposure across currencies, sectors, and nations has become the most prominent discussion point,” Bell observed. She added, “Individuals are essentially scrutinizing the global landscape, posing the questions: which segments are the most affordable? And where do the key prospects reside?”
A multitude of investors perceive Europe as presenting one such viable opportunity: the Stoxx Europe 600 maintains a price-to-earnings ratio of 18.3, starkly lower than the S&P’s 27.7, according to LSEG figures.
Funds concentrating on Europe have also drawn consistent capital injections over the last year, succeeding a period of relentless outflows spanning several years, as EPFR data reveals. This resurgence is bolstered by signs that the economic gloom is starting to dissipate.
Germany, the continent’s economic engine, re-entered a growth phase last year, a first since 2022, according to figures released last month. More recently, a noticeable rise in German factory orders has bolstered markets, with investors seizing upon indications that the substantial defense spending initiative announced last March is now permeating the industrial landscape, causing Bank of America analysts to uplift their recommendation on German equities to overweight.
Beata Manthey, head of European and global equity strategy at Citibank, noted that the heightened interest in European stocks has been propelled by both “domestic stimulus implementation” and a reallocation of capital towards non-technology sectors.
Defense shares, which experienced a significant ascent last year, have continued to climb, with Germany’s Rheinmetall registering a 12 percent increase in 2026 and the UK’s BAE Systems seeing a 26 percent rise.
“It was always going to be a gradual process to expand that capability and ensure the [German stimulus] capital reached its designated areas . . . but its occurrence is now indisputable,” Manthey commented.
Matthias Klein, a senior equity salesman at Bank of America, reported that the institution had noted “fresh enthusiasm” for German infrastructure enterprises.
“Should one be a macro investor located anywhere globally, this German narrative stands as one of the top two or three themes considered significant for the present year,” he further stated.
While the most significant capital injections have originated from European domestic investors and the US, analysts also highlight growing demand from Asian purchasers.
Tomochika Kitaoka, Nomura’s chief equity strategist, noted that “Japanese investors’ enthusiasm for European equities seems to be steadily escalating,” attributing this to Europe’s comparatively modest valuations when juxtaposed with other regions.
Despite this, some investors harbor skepticism regarding the capability of European stocks to achieve profit growth that could genuinely compete with Wall Street. S&P firms are anticipated to post over 12 percent year-on-year earnings growth during the current fourth-quarter reporting cycle, a figure that contrasts sharply with just under 4 percent in Europe, according to Barclays.
Hani Redha, a multi-asset portfolio manager at PineBridge Investments, conveyed a positive outlook concerning the influence of German stimulus on European markets. However, he clarified that he is acquiring particular stocks, rather than broad indices.
“We do not acquire European equities; we do not invest in the Dax,” he asserted. “Our methods for gaining exposure to that specific theme are highly precise.”