Analysis of Global Stock Market Valuations

The UK and European Equities team reports that European equities offer attractive value, with expectations of around 20% earnings growth this year. Despite this, valuations remain historically reasonable, especially in banks, industrials, and technology. Positive macroeconomic indicators, such as increasing new orders and PMIs, suggest a broadening economic expansion in Europe, largely driven by German fiscal stimulus and regional investments in data centers, AI infrastructure, and energy.

Earnings in Europe have proven more resilient than anticipated amid ongoing challenges. This resilience is attributed to various regional stimulus measures and relatively low leverage levels among both corporations and households. The team anticipates continued resilience despite recent pressures from rising bond yields, believing that the growing breadth of economic activities will attract more fund flows into Europe, supporting stock prices.

The UK market remains one of the cheapest major equity markets globally, with several high-quality companies available at discounts compared to global counterparts. The UK now represents just 3% of global market value—a record low—while seeing strong overseas takeover interest, presenting long-term valuation opportunities.

Interest in European markets has improved as investors respond to US exceptionalism fading and proactive fiscal measures in Europe enhancing growth prospects. While many European valuations have responded positively, several attractive valuations still exist, particularly at the sector and company levels, which may present opportunities for selective stock picking.

In Asia and Emerging Markets, equities have rebounded from lows but still maintain appealing valuations against developed markets. While South Korea and Taiwan have performed well, rising overall valuations have prompted caution. India faces near-term economic challenges, especially concerning energy imports and supply chain disruptions. The future of Chinese stocks shows promise despite persistent concerns, as current consumer outlooks appear overly pessimistic. Latin American markets also stand out as attractive, trading below historical averages and yielding high dividends.

Globally, an investment approach allows a broad selection of stocks across different sectors, enabling active managers to identify opportunities even in less favored areas. This diversification can also mitigate specific sector risks, ensuring a balanced portfolio that is well-positioned to utilize both long-term fundamentals and short-term market sentiments.