European stocks stay attractive despite sluggish economy, Economist reports

The Economist notes that the European economy is barely growing, with the IMF forecasting just 1.1% GDP growth for the euro‑area this year, well below the United States' 2.3% and the 1.8% rate for other advanced economies. Despite this slowdown, European equities are judged to be undervalued and increasingly attractive to investors seeking geographic diversification.

The analysis highlights that faster‑growing economies tend to deliver lower stock returns, a pattern confirmed by a study of 16 markets from 1900‑2002. European markets have long lagged global peers, but recent geopolitical events – notably the wars in Ukraine and Iran and the temporary closure of the Strait of Hormuz – have sharpened the focus on commodity‑linked sectors. About 20% of MSCI Europe’s earnings now come from companies that benefit from higher commodity prices, while only roughly 10% suffer from supply‑chain disruptions.

Investor sentiment has shifted, with international capital moving into European equity funds at a faster pace than before. Although the region’s stock markets fell after the onset of the conflicts, they have begun to recover as the Strait of Hormuz reopened, narrowing the performance gap with U.S. markets.