Unlocking Europe's economic potential | Amundi HK Retail

Unlocking Europe’s economic potential

Europe presents a diverse landscape, characterized by its varied and well-established economies. The region combines stability with innovation, supported by robust regulatory frameworks that foster growth.

Unlocking Europe's Economic Potential

Europe is at a pivotal moment, indicating a promising medium-term outlook for the region. Initiatives such as the new European defence strategy and fiscal expansion in Germany are poised to enhance productivity and innovation, thereby unlocking Europe’s economic potential. 

Following years of being overshadowed by U.S. exceptionalism, European markets have experienced a notable resurgence, outperforming their American counterparts. Consequently, they are becoming increasingly attractive to foreign investors, as evidenced by the recent increase in capital flows to Europe.

At Amundi, we firmly believe that Europe is a region of significant interest for investors as this positive long-term trend could persist for two main reasons:

  1. Rising concerns over trade tensions and fiscal indiscipline have reduced the perception of U.S. assets as the sole safe haven
  2. Europe is demonstrating enhanced stability and a commitment to achieving strategic autonomy

Ranking amongst the world’s largest economies

 

As one of the world’s largest economies, Europe is a leader in global trade, underpinned by a robust services sector and a strong industrial base. Looking ahead, the region is actively positioning itself to stay competitive in a rapidly evolving global economy.

 

Top 10 Largest Economies 2025

 

Source: Amundi Investment Institute, IMF, May 2025.

Evolving Capital Markets

 

Europe’s capital markets are also undergoing a transformation, shifting from a bank-centric model towards a more market-based financing system. Initiatives such as the Capital Markets Union Action Plan introduced in 2015 aim to enhance efficiency and attract global investors, supporting access to public markets for small and medium-sized enterprises (SMIDS).

 

European Stock Exchanges

 

Source: World Federation of Exchanges, December 2024.

Area in Focus: SMIDs

 

Global policy uncertainty and ongoing geopolitical tensions pose risks for all segments, including European SMIDs, which underperformed in 2022 and 2023 due to rising inflation, rapid interest rate hikes, supply chain disruptions, and negative market sentiment that collectively hampered growth. 


However, these risks may be more than priced in. The gap between the forward P/E for the S&P500 and the Stoxx600 indices signals that Europe is particularly appealing as a value play, with an emphasis on quality deemed essential. With European SMIDs' earnings growth outpacing their large-cap counterparts since 2022, the fundamentals remain attractive, especially given their recent underperformance, which should support valuations.

 

European Equity Valuations

 

Source: Amundi Investment Institute. Data as of 26 June 2025.

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