Investors should lean into European equities in 2026, with a view that they are undervalued versus US counterparts.
“European equities have enjoyed a strong rally through 2025, and the outlook for 2026 remains broadly positive,“ said Francesco Bergamini, head of Freedom24 Italy, a division of investment platform Freedom Finance Europe and part of Nasdaq.
A few factors underlie this optimism, noted Bergamini: attractive valuations, heavy fiscal stimulus – especially in defence and infrastructure – and a shift of global capital toward Europe as an alternative to pricier US markets.
European stocks have been trading at a valuation discount relative to US equities, and investors have taken notice, said Bergamini.
“In late 2025, investors started to notice that European shares could rise another 11% in 2026, buoyed by an improving economic backdrop and still low valuations relative to the US,” said Bergamini.
“This valuation gap is significant – for instance, as of December 2025 the MSCI Europe index’s forward P/E was 15x, versus 22x for the S&P 500,” he added.
Such a discount has made Europe attractive, especially after a year in which nearly every European sector, with the exception of tech, outperformed its US counterpart.
Capital flows have indeed been rotating toward Europe.
“As US markets became too expensive and were rattled by policy uncertainties, like new trade tariffs, investors reallocated funds into Europe’s undervalued assets,” added Bergamini.
The STOXX 600’s early 2025 rally was attributed in part to investors shifting out of “tariff-roiled” US markets during bouts of trade tension.
“By the end of 2025, European indices were hitting record highs, aided by global investors diversifying from premium-valued US technology stocks,” Bergamini said.
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