European stock markets have surged in 2025, with half of the world’s 20 best-performing indices located in the region. This achievement, only the fourth of its kind, signals a resurgence of investor confidence driven by improving growth prospects. The performance has taken many by surprise, as initial forecasts anticipated modest gains in Europe, with the United States expected to lead global market performance.
With one month remaining in the trading year, several European markets have delivered exceptional returns. Hungary, Slovenia, and the Czech Republic have each rallied by more than 60 per cent in dollar terms, placing them among the top 10 global performers. Spain, Poland, and Austria are also showing strong results. Germany, a major European market, has seen gains of 20 per cent in euros and 34 per cent in dollar terms.
The Stoxx 600 Index is nearing its largest outperformance against the S&P 500 since 2006 in dollar terms. Investors are increasingly optimistic about Europe’s outlook, citing lower inflation compared to the US, Germany’s planned fiscal stimulus, and projected rebound in corporate earnings. A recent Bank of America Corp. survey indicates that investors are now net overweight on European stocks while being slightly underweight on US equities.
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