The Unlikely Resilience of European Markets

European equities have long been viewed as underperforming compared to American and Asian counterparts, but recent performance reveals a more nuanced story. The pan-European Stoxx 600 index has gained 10% this year, outpacing its North American counterpart’s 13.5% return over the same period.

Goldman Sachs’ research aims to dispel “myths” about investing in Europe by highlighting the complexity of performance across various sectors. European banks, for instance, outperformed the so-called Magnificent 7 – a group of high-flying US tech stocks – in 2022. Furthermore, despite both a tariff shock and an energy supply crisis, Europe’s Stoxx has outperformed the S&P 500 since the start of 2025.

The narrative that Chinese competition is a major headwind for European companies has been widely cited as a reason to avoid investing in the continent. However, Goldman’s analysts argue that this narrative is oversimplified, pointing out that low-cost China imports have little impact on Europe’s largest sectors – including financials, pharma, tech, energy, utilities, telecoms, aerospace and defense.

The European autos sector has indeed been struggling with a structural crisis, characterized by slowing demand for electric vehicles, lost market share to Chinese competitors, and higher borrowing costs. The Stoxx Autos index has taken a hit, down 16% year-to-date, with Volkswagen AG and Stellantis among the worst performers.

BNP Paribas’ Sophie Huynh believes that Europe is more likely to be an AI beneficiary rather than a developer – and that the autos sector stands to benefit. “At this point, the sector is so cheap that no one is really thinking about the potential upside in there,” she says, suggesting that investors can sit on these deep value sectors for years before market consensus starts to realize their worth.

Goldman’s analysts acknowledge that Europe lags behind on several fronts – including data center rollouts and frontier modelling – which could have negative consequences for security and productivity. However, they also argue that being behind on the AI trade may not be such a bad thing, providing a hedge for investors worried about risks around China competition.

This reevaluation of European markets suggests that investors should reconsider their assumptions about the region’s economic prospects. As Huynh notes, “a lot of good news about U.S. consumption is already priced in” – so it’s time to start paying attention to what’s happening on this side of the Atlantic.

The implications for Europe’s economic prospects are far-reaching and challenge conventional wisdom about the region’s ability to compete with its global counterparts. This also raises important questions about the role of AI in driving investment and growth, and whether Europe is better positioned than we think to benefit from this trend.

As the market continues to evolve, investors would do well to take a closer look at what’s happening in European markets, rather than relying on outdated assumptions about their prospects. The unloved stepchild of global markets may have more to offer than we ever imagined.