Is there value in European equities?
European equities are in the bargain basement owing to a stagnant economy – but tread carefully


European stocks have struggled this year thanks to the continent’s economic troubles. European equities are now trading at the most significant discount to their US counterparts since at least 2003. The 12-month price-to-earnings (p/e) multiple of the MSCI Eurozone index is 60% of the MSCI US index, compared with its 20-year median of about 80%.
Some of this gap is warranted. Europe has registered anaemic growth since the financial crisis and, since Covid, the economy has ground to a halt. High energy costs and political chaos have hit the core economies.
According to the International Monetary Fund, Europe’s ageing workforce, low productivity growth and “lack of business dynamism” will reduce the continent’s GDP growth rate to just 1.45% per annum over the rest of the decade, compared with 2.3% for the US. JPMorgan estimates that eurozone GDP is expected to fall below 1% next year – without considering the impact of any changes to global trade induced by Donald Trump.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Earnings at listed European companies will stagnate in 2025 for the second year in a row. Tariffs are the wild card. Trump has promised to bring in tariffs on goods imported from Canada, Mexico and China on his first day in office. JPMorgan has put the cost of Trump’s tariffs the first time round (2018) at 1% of euro-area GDP over two years. This time it could amount to as much as 2% if Trump follows through with his plans to hit European imports with tariffs of 10% to 20%. Germany and Italy would be the most vulnerable in this worst-case scenario.
Considering the eurozone’s economic outlook, European equities, in aggregate, deserve to trade at a discount to their US peers. However, uncertainty is creating some opportunities as investors indiscriminately dump European stocks.
Are European equities undervalued?
Europe might not be home to many technology giants but it still offers some of the world’s most successful businesses in their respective fields. The continent’s demographic challenges will also be a tailwind for key sectors. Then there’s the defence sector. Russia’s war against Ukraine has spurred defence spending in Europe, a trend that seems set to continue for many years.
Considering these factors, the iShares MSCI Europe Health Care Sector Ucits exchange-traded fund, or ETF (LSE: ESIH); HANetf’s Future of Defence Ucits ETF (LSE: NATO); and the iShares MSCI Europe Energy Sector Ucits ETF (LSE: ESIE) look worthy of further research. They are regional thematic plays on government spending and the continent’s ageing workforce.
An alternative is JPMorgan’s Europe Research Enhanced Index Equity (ESG) Ucits ETF (LSE: JERE). This ETF builds on the idea of passive index investing by incorporating research from analysts at JPMorgan. It overweights positions to securities with “the highest potential to outperform” while underweighting those considered most overvalued.
The results of this approach have been impressive. Since the fund’s launch in October 2018, it has returned 9.2% annually, compared with 8% for the benchmark (the MSCI Europe Index). The fund is overweight in the UK, at 25.4% of assets compared to 22.6% for the benchmark. It’s also overweight energy names, such as Shell. It’s overweight the Dutch semi-conductor equipment manufacturer ASML but underweight another of the continent’s tech champions, SAP, which gives us a real insight into where the team sees value.
There is no guarantee that Europe’s equity markets will rebound or economic growth will pick up, and the situation could get worse for the region. However, considering the valuation, there’s a lot of potential disappointment already baked in here, and if growth does return, the snap-back could be substantial. With an expense ratio of just 0.25%, it’s a cheap way to build exposure to cheap European markets and avoid some less exciting opportunities.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

Rupert is the former deputy digital editor of MoneyWeek. He's an active investor and has always been fascinated by the world of business and investing. His style has been heavily influenced by US investors Warren Buffett and Philip Carret. He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks.
Rupert has written for many UK and international publications including the Motley Fool, Gurufocus and ValueWalk, aimed at a range of readers; from the first timers to experienced high-net-worth individuals. Rupert has also founded and managed several businesses, including the New York-based hedge fund newsletter, Hidden Value Stocks. He has written over 20 ebooks and appeared as an expert commentator on the BBC World Service.
-
What Santander’s takeover of TSB means for customers
Santander is set to buy rival TSB for £2.65 billion. What does it mean for customers, and could we see the TSB brand disappear from the high street?
-
How to find active fund managers that are worth paying for
Active funds are unlikely to beat a cheap tracker on average, but can be valuable in certain markets
-
How to find active fund managers that are worth paying for
Active funds are unlikely to beat a cheap tracker on average, but can be valuable in certain markets
-
European stocks are back in business – can it last?
European stocks enjoy a strong start to the year, but the rally is proving uneven as France struggles to keep up
-
Aberforth Smaller Companies Trust: a fund that lets you buy Britain on a triple discount
Opinion If UK stocks return to favour, Aberforth Smaller Companies Trust, a value-focused investment trust, should perform well, says Max King
-
Vietnam: a high-growth market going cheap
Opinion The threat of tariffs has shaken Vietnamese stocks, but long-term prospects remain solid, says Max King
-
Europe's investment potential: Stocks are cheap and ready to rise
Daniel Avigad, manager of the TM Lansdowne European Special Situations Fund, discusses Europe's investment potential with Andrew van Sickle
-
CVC Income & Growth: a high-yield play in private credit
Opinion CVC Income & Growth offers a way for individual investors to buy into the fast-growing market of private credit
-
'Pension funds shouldn't be pushed into private equity sector'
Opinion The private-equity party is over, so don't push pension funds into the sector, says Merryn Somerset Webb.
-
A fund that looks past the short term in Asia
Growth should remain strong, but successful managers also need to focus on governance. Here's how to find active opportunities in Asian markets.