Are European stocks too cheap to ignore?

Germany's DAX stock market index is up 7% already this year

(Image credit: Daniel Roland/AFP via Getty Images)

published 3 February 2025

Europe finds itself “in the midst of a perfect storm”, says The Economist. Growth faces “stiff headwinds” and electorates are “routinely tossing their leaders overboard”. Donald Trump is planning tariffs. Europe’s catalogue of problems is long, says Simon Nixon in the Financial Times. Growth has “stalled”, regulation is “burdensome”, energy prices are “high” and manufacturing is under pressure from China.

Yet with so much pessimism around, there is a “very low bar” for positive surprises that could boost stocks. So what might go right? Unexpectedly large interest-rate cuts by the European Central Bank (ECB) would help. On the political front, an end to the war in Ukraine could improve sentiment. Finally, German elites are slowly coming around to the idea that the country must reform its self-defeating “debt brake”, which has long been an obstacle to higher growth.

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Economic sentiment is “on the floor” in Germany, yet European stocks have enjoyed a surprisingly strong start to the year, says John Authers on Bloomberg. The DAX index is up 7% already this year, with France’s CAC 40 not far behind. Bank of America’s latest monthly survey shows global fund managers have raised their “European weighting… by the most in any month since 2015”. It seems the continent’s stocks have simply become too cheap to ignore, giving a substantial “margin of safety” for investors. As Andrew Lapthorne of Société Générale notes, MSCI Europe is trading at a record 40% discount to US stocks on a forward price/earnings basis.

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.