Finding Pockets of Growth in Europe’s Overlooked Equity Market

Attractive growth companies are scattered across Europe’s otherwise lackluster market landscape. Here’s how to find them.

Europe is often seen as an inferior source of growth to US markets. Yet by deploying a coherent bottom-up process, equity investors can find high-quality stocks across Europe, backed by businesses with powerful and underappreciated long-term growth potential.

Europe’s stock markets have been overshadowed by the US for years. When the MSCI Europe Index advanced 15.8% in euro terms in 2023, the S&P 500 surged by 26.3% in US-dollar terms. The index performance gap reflected sluggish earnings growth in Europe, at a time when US markets have been turbocharged by a small group of mega-cap stocks seen as big beneficiaries from artificial intelligence.

The economic backdrop didn’t make it easier. Europe has been hampered by relatively slower GDP growth, and regional equity markets have a heavier contingent of cyclically sensitive stocks than the US. So why should investors focus on Europe as a distinct equity allocation or within a global portfolio?

For Some Industries and Businesses, the Economy Doesn’t Matter Much

Europe, in fact, offers attractive pockets of growth for investors who know how to find them. Several European industries—including industrials, semiconductors and electrical equipment—are forecast to deliver robust earnings growth through 2026, according to consensus estimates (Display). These industries are poised to expand well above the region’s meager GDP growth forecasts.

Some European Industries Are Poised for Rapid Growth