The prevailing narrative around Europe often feels like one of permanent gloom. It’s seen as a slow-growth region with an ageing population, buffeted by external headwinds such as the ongoing energy supply shock and China’s rising export dominance. Yet, this gloomy outlook sits at odds with European stock indices reaching all-time highs and corporate earnings for the Stoxx Europe 600 rising 15 per cent in the first half of 2026.

European equities have outperformed the S&P 500 since the start of 2025. More surprisingly, European bank shares — often seen as the epitome of old-economy, low-growth Europe — have outperformed US megacap technology stocks since 2022. About 40 per cent of the revenue generated by Europe Stoxx companies is homegrown, while a quarter stems from North America and the FTSE 100 generates more than three-quarters of sales from outside the UK.

Profitability has improved, with margins and share buybacks on the rise. Europe’s sector mix offers exposure to infrastructure, defence and electrification. While China’s rise hits German manufacturing, auto companies now make up just 1 per cent of the European equity market. Europe lags in AI investment but offers diversification benefits.

Europe is cheaper than the US across most sales-growth bands, with corporates supporting the market through buybacks and record M&A. It is seeing its strongest investor inflows in a decade, excluding 2021. Europe’s status as a market generating cash rather than spending is looking like its greatest advantage.