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In Greek mythology, Sisyphus was the King of Ephyra who angered Zeus for revealing his secrets and then cheating death. Zeus condemned Sisyphus to endlessly roll a boulder up a hill, only for it to tumble back down each time he nears the summit.
It’s a tale of perpetual struggle without resolution, and a metaphor many of us can empathise with at some point in our lives.
Trying to get investors to share my enthusiasm for European Equities, as I have for the best part of a decade, has often felt like a Sisyphean task. While there have often been short periods of optimism and intrigue for the asset class where the summit has looked close, most have proved false dawns.
Asset allocators had effectively given up on Europe until recently. Most have increasingly shifted capital towards global equity funds and away from regional equivalents, all while investing more and more in the US stock market.
This has been the correct bet. Higher growth in gross domestic product (GDP) and earnings has translated to better performance.
The ‘American Exceptionalism’ narrative has sometimes felt both inevitable and inexorable.
Morningstar Global Equity Blend category regional allocations
The events of 2025 might prompt asset allocators to revisit these allocations. As ‘shocks’ become less shocking, this raises the argument for portfolio diversification.
Meanwhile, the political and economic ramifications have the potential to prompt serious change, and this time, it genuinely feels different.
But before we get into that, it’s worth covering some reasons for Europe’s declining role in portfolios.
Crisis recovery: policy divergence
It seems scarcely believable that for much of the 2000s, European equities outperformed the S&P 500. The S&P endured a bit of a lost decade as technology and discretionary stocks, which dominated the market, struggled to recover from the dotcom bust. At the same time, Europe lived it large on higher economic growth and a weaker dollar.
For global investors and asset allocators, it was all about diversification and being selective across regions. That changed with the onset of the Great Financial Crisis.
In the wake of the 2008 crisis, the US and Europe applied very different playbooks for recovery.
The US unleashed aggressive fiscal stimulus, providing oxygen to its economy. Over the subsequent years, economic growth recovered, while Silicon Valley began churning out the disruptive technology companies that would propel the US stock market to ever-greater heights.
European countries, by contrast, chose to repair their large deficits through austerity measures and raised banks’ capital requirements. Doing so ushered in an era of fiscal discipline and improved bank balance sheets, but at the cost of growth.
Europe entered a state of benign decline. In the words of former European Central Bank President Mario Draghi, slowing growth was “seen as an inconvenience and not a calamity.”
As the global economy recovered and China boomed, European companies were able to tap into export-driven growth, with many placing themselves as global leaders in structural niches.
Meanwhile, countless European entrepreneurs and innovators moved westward as more capital and the cluster effects of Silicon Valley became too hard to turn down.
For European investors in the 2010s, structural growth became about investing in the beneficiaries of globalisation, such as Atlas Copco, the air compressor manufacturer, or DSV, the freight forwarder. They also invested in a number of globally competitive, technology-focused companies, such as Spotify, in audio streaming, and Adyen, in payments processing.
This was a good period for the European growth investor, but Europe’s lack of hyperscalers – the large technology companies providing cloud computing services at scale, such as Amazon Web Services (AWS) – and the sheer volume of technology unicorns (privately owned tech businesses valued at over $1bn) coming to market held it back.
A yawning performance gap
Tables turning?
It feels as if European governments are finally waking up and smelling the coffee. In recent months, European countries have committed to substantially increasing defence spending, while the contents of the European Commission’s Draghi Report on EU competitiveness from 2024 have made the need for fiscal investment abundantly clear.
Most significantly, Europe’s traditional austerity champion, Germany, has effectively suspended its famed ’Schwarze Null’ (black zero) balanced-budget obsession.
Faced with its low-growth reality, Germany has approved massive spending packages, designed to upgrade infrastructure across various sectors and its military.
The infrastructure spending package is worth €500bn over 10 years, which, when combined with defence spending, represents around 20 per cent of GDP. Such high levels of investment could transform Germany’s growth prospects over the next decade.
This U-turn marks a sea change in fiscal philosophy for a country once allergic to deficits. It is now making the case to fellow EU members that the fiscal rules, which have for so long hamstrung investment, should be relaxed, creating the potential for a much larger wave of fiscal expansion.
Philosophical shifts aside, this is particularly interesting because the US appears to be turning inward and retrenching, making it almost the opposite of its response to the GFC.
Meanwhile, European central banks have continued cutting interest rates, while the US Federal Reserve has been constrained by relatively higher inflation. This role reversal is striking.
A decade ago, the US was the accelerator and Europe the brake; today, the US is taking a more sober approach to fiscal policy, while Europe is starting to take a more expansionary approach.
For the first time in recent memory, Europe’s policy stance is relatively more growth-oriented than America’s.
Does this guarantee Europe a brighter economic future? Not automatically, and execution will be key. But it certainly tilts the odds.
Europe is finally acting like a region that wants to grow, invest and compete, rather than simply lecture about stability.
For investors, that means that the winds in Europe are shifting from headwind to tailwind, which deserves attention.
Growth opportunities
The European Commission’s Draghi Report clearly identifies the deficiencies Europe needs to address. It must address the innovation gap, removing the barriers to commercialisation and fundraising that have led so many of its entrepreneurs to head across the Atlantic.
Europe must pursue greater energy independence and secure low-cost, clean energy to make businesses more competitive. It must also shore up its security and reduce its dependence on other countries for key materials and technologies, like semiconductors.
In addressing these challenges, we expect disproportionate value to accrue to European ‘champions’. Ironically, many companies can deliver in these areas despite historically sluggish demand in their home markets.
Take the French company Nexans, for example. As electricity becomes the dominant energy carrier in a decarbonising world, grid investments are poised to soar, a need made clearer by the recent outages in Spain.
Nexans sits at the core of this buildout. Its high-voltage cables are critical to offshore wind and grid projects. Between Nexans, Italian company Prysmian and Danish firm NKT, European cable manufacturers control 70 per cent of the global high-voltage cabling supply.
Nexans underscores its significant role in this market by participating in major projects, such as supplying 450 kilometres (km) of high-voltage subsea cables and 280km of onshore cables for France’s offshore wind farms, and 1,800km of cabling for the Great Sea Interconnector project, which connects the energy grids of Greece and Cyprus.
With transmission constraints now a binding bottleneck across Europe and North America, Nexans is no longer a cyclical supplier but a structural enabler of the energy transition.
Similarly, Kingspan can be one of the underappreciated beneficiaries of the broader infrastructure push. Its insulation and building envelope technologies directly address the urgent need to make buildings more energy efficient.
Kingspan's insulation solutions can reduce home heating energy use by up to 45 per cent, significantly lowering energy bills and carbon emissions.
Insulation may not sound that exciting. However, given that energy costs are a major disadvantage for many European companies compared to their American peers, investing in insulation is critically important.
Kingspan’s global footprint and innovation in circular materials make it a go-to partner for green building mandates, including the buildout of data centres, which comprise an increasing proportion of its order book.
Europe lacks the semiconductor manufacturing scale of the US, Taiwan and Korea, but it does have the companies that produce the equipment that makes this manufacturing possible.
Two Dutch companies, ASML and ASM International, are not only technological gatekeepers to global chip production but also irreplaceable.
ASML’s extreme ultraviolet (EUV) lithography systems are essential to advanced logic chip production. Likewise, ASM’s deposition technologies are critical for 3D scaling, which is becoming increasingly important as we pursue more advanced semiconductors.
Without ASML and ASM, much of global innovation would simply be impossible.
Europe is only now building out manufacturing capabilities (‘fabs’), with the European Semiconductor Manufacturing Company, a joint venture between companies including Infineon, Bosch and TSMC, breaking ground on a facility in Dresden, Germany, in September 2024.
This could be the beginning of a long investment period as the continent seeks to secure its semiconductor supply chain.
There are lots of other companies we could mention. Instalco specialises in technical installation projects across Northern Europe, from energy solutions to data centre projects.
Assa Abloy, the world’s leading access solutions business, benefits from the continued expansion and upgrading of buildings.
DSV, as the largest freight forwarder in the world, profits from the complexity that re-shoring and near-shoring add to supply chains.
The point is that many of the companies required to meet this new wave of investment already exist in Europe and have thrived in the face of global competition. Europe’s new dawn only amplifies their potential growth.
Why should you care?
Over the past 10 years, around $400bn net has flowed out of European Equity strategies.
Appetite has, frankly, capitulated. US equities have been a disproportionate recipient of this cash, whether through direct investment or as part of global equity funds.
For the most part, this concentration has benefited investors. However, as geopolitics becomes a factor in market moves once more and remains eminently unpredictable, diversification looks appealing.
The chart below shows that valuations support a rebalance from concentration to diversification. When we extend this to the valuation of the growth style in these regions, the argument becomes even more appealing after a period of value dominance.
Should domestic momentum improve, the outlook for European growth investing looks decidedly brighter.
Price to earnings 1y forward (x)
If Europe’s growth prospects truly are improving, this valuation discount presents a compelling opportunity. Even if investors only add a small amount to their European allocation, European equities could outperform in the medium term.
We don’t need Europe to suddenly grow faster than the US, and we know it is not going to create the next NVIDIA or Amazon overnight.
However, in shifting its mindset from saving to investment, Europe could look materially different in 10 years.
People often feel pessimistic about Europe and believe that it is condemned, as Sisyphus, to experience perennial disappointment.
However, with valuations still attractive, we only need Europe to show small signs of progress to defy those expectations.
A little good news goes a long way when nobody is positioned for it. Indeed, we’re starting to see glimmers of a rotation.
In early 2025, European stocks outpaced US stocks and saw their first meaningful inflows in years.
It’s early days, but Europe is a market to watch, and unlike Sisyphus, persistence might just pay off.
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This communication was originally produced and approved in July 2025 and has not been updated subsequently.
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