The UK stock market is expected to rise by 7.79% in 2025. The French stock market rose 9.9%. The German stock market rose 13.27%. The reasons for the increase include:
1. Significant valuation advantage
The P/E ratio of European stock markets is much lower than that of US stocks, with the expected P/E ratio of the pan European Stoxx 600 index being about 14 times, while the S&P 500 index is 22 times. This' value depression 'has attracted global capital inflows, especially when US tech stocks are overvalued and face competitive pressures (such as the rise of Chinese AI company DeepSeek), causing funds to shift towards the European market.
2. Improvement in Enterprise Profit Expectations
According to LSEG IBES forecasts, European businesses are expected to accelerate significantly this year, shifting from a decline of 3.9% in 2023 to an expected growth of 7.9% in 2025.
Deutsche Bank predicts that the US GDP will grow by 2.6% in 2025, which will bring favorable revenue growth to European companies, especially in the service industry, as it is not affected by tariffs. The recovery of the Chinese economy will also drive income growth in European export-oriented industries, such as manufacturing.
3. Policy easing and expectations of interest rate cuts
The European Central Bank will start its interest rate cut cycle in early 2025, and the market expects that the annual easing will be greater than that of the Federal Reserve.
4. Capital inflow
In January 2025, the inflow of funds into European stock funds reached the second highest level in 25 years, and investors' low allocation positions formed a "marginal seller's deficiency" effect. Marc Halperin, portfolio manager at Edmond de Rothschild AM, stated that global investors still have a low allocation of European assets, making it difficult to find "marginal sellers" in the market, which continues to drive funds into the European market.
The long-term prospects for Europe are still not bright
Michele Morganti, a strategist at Generali Investments, believes that although factors such as slowing profit growth in US technology stocks may prompt some funds to tilt towards the European market, structural problems still exist in the European market, and the dilemma of long-term lack of competitiveness has not truly changed.
In terms of profit growth, European companies are expected to accelerate significantly this year, shifting from a decline of 3.9% in 2023 to an expected growth of 7.9% in 2025. Although the profit growth rate of American companies has slowed down, it is still expected to increase from over 10% last year to 14.1% this year, continuing to be higher than the European market.
Market participants generally believe that in the short term, the upward trend of European stock markets may continue, but whether they can maintain their lead in the long term remains a question mark. The current strong performance is more like a correction to years of undervaluation than a fundamental reversal of global capital flows. We hope Europe can perform better than other markets, but we haven't reached that stage yet, "said Daniel Morris, Chief Market Strategist at BNP Paribas
Risk statement
Stocks and funds both carry risks, so investments should be made with caution. This account is mainly for sorting out some knowledge points and insights on one's own investment journey. It should be regarded as a personal note and made public for the convenience of self inquiry. We also hope to provide some help to others and do not constitute any investment advice. The funds or stocks mentioned are not recommended in any way
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