Over the last decade, European equity markets have significantly lagged the MSCI All Country World Index, with the majority of that underperformance emanating from the strong returns in the U.S. market over that period. Europe seems to have missed the big waves of innovation and disruption that have helped to power the recent gains in the U.S. stock market.

Framed another way, Europe is underexposed to the high growth companies that have become a defining feature of the U.S market. While that may be beneficial in a year like 2022 when European markets outperformed their global counterparts during a global market selloff as growth companies suffered severe multiple compressions, the bigger question for investors remain, how many companies with a trillion-dollar market capitalisation are European?

The outlook in 2025 has not changed. With key events ahead, starting with German elections in February, it seems likely that investors in European equities may have to be content with yet another year of modest returns, or work even harder to uncover areas of the market that can show some secular growth. While Chinese equities have rallied after the government announced new stimulus measures to boost the economy and this may happen again, we think that reigniting consumer confidence sustainably in the world's second-largest economy is going to prove much harder than market expectations. We maintain our cautious outlook on the Chinese economy and markets and doubt Beijing's ability to provide a demand boost for European corporates.