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European fund managers are increasingly bullish that rising economic growth will fuel a rally in the region’s stocks, with the proportion saying the shares are undervalued against global peers reaching its highest in six years.
Bank of America’s latest survey of more than 200 European fund managers — responsible for managing $482bn in assets between them — found that the proportion that view the region’s equities as undervalued had hit a net 38 per cent of respondents.
“A plurality of investors expects Europe to be the best performing equity market globally this year,” BofA researchers said.
There is evidence they are now putting money behind that view. Of the survey respondents, a net 12 per cent were “overweight” European equities compared with the typical exposures of their own global equity benchmarks.
In December, a net 25 per cent said they were “underweight” Europe, meaning they were taking less exposure than their benchmarks.
European stock markets, which have fallen behind rivals in recent years on a combination of US tech dominance and worries about EU growth, have outperformed many of their peers this year.
The region-wide Stoxx Europe 600 index is up almost 10 per cent in 2025, against a nearly 4 per cent rise for the S&P 500 and a tiny fall for Japan’s Topix.
“Our tactical models have taken Europe from the largest underweight to a small overweight in the past few months,” said Trevor Greetham, head of multi-asset at Royal London Asset Management. He cited better prospects for earnings, helped by a weaker euro, and the relative cheapness of European stocks compared with the US.
The region’s indices have traded at a growing discount to US benchmarks, reflected in a lower multiple of share prices to expected earnings, in recent years.
The better sentiment, BofA said, was being fed by rising optimism over EU economies, with a net 45 per cent of the survey respondents expecting stronger economic growth over the next 12 months, the highest level since last May. The researchers said the prospect of fiscal stimulus in Germany and further interest rate cuts by the European Central Bank were the key drivers.
Investors have also bought European equities on relief that the EU, viewed as a primary target of Donald Trump’s “America First” trade policies, did not fall victim to day-one tariffs from the new US president.
But Luca Paolini, chief strategist at Pictet Asset Management, warned that the rally was “based on hope, not facts”, citing bets on firmer growth and a peace deal in Ukraine.
There was a risk that the sentiment overruns, he added. “European stocks are not as cheap and under-owned as they were in December.”
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