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Fund sector reviews

European stock market and funds review – political surprises, rate cuts and more

We look at interest rate cuts from the European Central Bank (ECB), political upheaval in France and how Europe’s stock market and funds have performed.
European flags in Brussels- GettyImages

Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

It’s been an eventful few months for Europe, with the European Central Bank (ECB) cutting interest rates, European Union (EU) elections taking place, and France calling a surprise snap election.

While Europe’s not alone, there’s plenty of economic and political uncertainty looming over markets, which increases uncertainty for investors.

Now that we’re almost halfway through 2024, it’s a good opportunity to look at back at the year so far, and what might lie ahead.

This article isn’t personal advice. If you're not sure if an investment is right for you, ask for financial advice. All investments and any income they produce can rise and fall in value, so you could get back less than you invest. Past performance isn’t a guide to the future.

Europe the first to cut rates

Typically, the US leads the way in terms of economic and monetary policy. But this year’s been different.

Many of us expected the US to cut interest rates first among developed economies. Instead, Switzerland and Sweden cut first, in March and May respectively, due to a combination of weaker inflation and economic activity. In Switzerland’s case, core inflation dropped below 1.1%, well below its 2% target.

In early June, the ECB followed and cut its key interest rate to 3.75%, ahead of both the US Federal Reserve and the Bank of England. This came as a relief to many consumers and businesses whose finances had become stretched against a backdrop of higher rates and borrowing costs.

That said, inflation remains stickier than expected, which could see policymakers hit the pause button on reducing rates further.

Annual inflation rose 2.6% in May, compared with 2.4% in the previous two months, moving away from the ECB’s target of 2%. Lower levels of inflation are typically needed for central banks to cut rates, otherwise there’s a risk of overheating the economy.

Two or three further rate cuts are still expected by the end of the year, but the ECB is likely to take a cautious approach and cuts could be gradual, or even volatile.

Political uncertainty in France

This month President Emmanuel Macron dissolved the National Assembly and called a snap election.

This came after his Renaissance party lost ground to Marine Le Pen’s National Rally party in EU elections. It was a crushing blow, with the centrist party only securing half the votes received by the far-right National Rally.

Macron called the vote in a hope to show that French voters will turn their back on Le Pen at a national level. Or, if the National Rally wins, it could expose contradictions and uncertainty in its populist policies and lead to market upheaval, showing voters it’s not the party to back.

In the meantime, Macron could attempt to win favour among other parties in the event a coalition needs to be formed.

Alternatively, things don’t go to plan, and he simply loses the vote.

It’s quite the gamble.

While it’s a very short timeframe, French stock markets have stalled since the vote, and we could see volatility persist.

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Aside from various elections, France also faces a mounting debt pile. The S&P Global Ratings agency, which rates the creditworthiness (the ability to repay debts) of various companies and countries, recently downgraded French bonds.

The S&P expects government debt to reach 112.1% of GDP (Gross Domestic Product) in 2027, up from 109.0% in 2023. The country’s debt-to-GDP ratio has also become the third highest in the euro area, after only Greece and Italy.

It was only just over a decade ago that a handful of European countries got swept up in the eurozone debt crisis. It’s unlikely things will get to that point for France, but risks remain.

This could be a fragile period for some companies, like those in the banking sector. But don’t forget, the success of many companies isn’t tied to the economy. Lots of European-based companies also carry out business globally, which could provide them with some resilience during tough times for the continent.

How have European stock markets performed?

European stock markets have performed well over the past year (in sterling terms, to the end of May 2024). Over this time, the broader European stock market, as measured by the MSCI Europe ex UK index, has grown 17.72%*.

The broader global market, the MSCI AC World index, has done slightly better, growing 20.84% over the same time. As always though, past performance isn’t a guide to future returns.

The global stock market has benefited from its large allocation to the US, in particular big tech firms, which have performed well over the past year and beaten most other markets.

But investors shouldn’t dismiss stock market growth from Europe – this is still an impressive annual return. Don’t forget that different markets and sectors, like tech, will also come in and out of favour.

Looking at countries individually, three markets led the growth in Europe – the Italian, Danish, and Dutch markets are up 39.73%, 37.28% and 24.51%, respectively.

In Denmark, pharmaceutical company Novo Nordisk, which makes up over two-thirds of its market, performed well thanks to the popularity of its diabetes drugs in the US.

Elsewhere, investors have been tempted back into the Italian market off the back of stronger economic growth and attractive company share valuations. Banks have also helped here as rising interest rates boosted profits.

In the Netherlands, ASML, a semiconductor manufacturer that now makes up almost half of the Dutch market, has performed strongly thanks to robust demand for semiconductors.

European smaller companies haven’t performed as well as larger companies over the year. But recent performance is better with the MSCI Europe ex UK Small Cap Index making 16.55% over the year.

Investor sentiment, which can have a greater impact on smaller companies that have a less certain future compared with larger firms, has improved, and benefited share prices.

The average fund in the IA European Smaller Companies peer group didn’t perform quite as well, returning 11.36% over the same time.

The Swiss market was one of the weakest, but still grew 6.97%. Strength in the Swiss franc has held back returns for overseas investors, including those in the UK.

Past performance isn’t a guide to future returns.
Source: *Lipper IM, to 31/05/2024.

Annual percentage growth

31/05/2019 - 31/05/2020

31/05/2020 - 31/05/2021

31/05/2021 - 31/05/2022

31/05/2022 - 31/05/2023

31/05/2023 - 31/05/2024

MSCI Denmark






MSCI Europe ex UK Small Cap






MSCI Europe ex UK






MSCI Italy






MSCI Switzerland






Past performance isn't a guide to future returns.

How have European Wealth Shortlist funds performed?

All European Wealth Shortlist funds have delivered a positive return over the past year, though the level of performance is mixed.

We usually expect this. A range of managers with different strengths, styles and areas of focus will perform differently in different economic conditions.

Investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

For more details on each fund and its risks, including charges, you can use the links to their factsheets and key investor information below.

Remember, 12 months is a short time when looking at performance. Investments should be held as part of a diversified portfolio for the long term – that’s at least five years.


The best performing Wealth Shortlist European fund over the last year was the Legal & General European Index.

The fund offers broad exposure to larger European companies, excluding the UK. It aims to track the performance of the broader European stock market, as measured by the FTSE World Europe ex UK Index.

The benchmark index is currently made up of 571 companies and focused on sectors like financials, industrials and healthcare.

France, Switzerland and Germany make up a large part of the index, accounting for 22.7%, 17.4% and 16.7% respectively.

The fund has benefited from the broader strength of the European stock market and the low costs involved in running the fund.


Polar Capital European ex UK Income

Polar Capital European ex UK Income was the weakest performer over the year.

Nick Davis, the fund’s manager, uses a defensive and conservative investment approach.

Over the longer-term this means the fund has tended to lag a rising market, but hold up better when markets fall. It means the fund has lagged the recent market strength.

The aim of this fund isn’t only to beat the market or peers though. It also aims to be less volatile than the peer group and broader European market, as well as pay an attractive income. We feel this is something it’s achieved over the long run.

Annual percentage growth

31/05/2019 - 31/05/2020

31/05/2020 - 31/05/2021

31/05/2021 - 31/05/2022

31/05/2022 - 31/05/2023

31/05/2023 - 31/05/2024

Legal & General European Index






Polar Capital European Ex UK Income






IA Europe Excluding UK






Past performance isn't a guide to future returns.
Source: Lipper IM, to 31/05/2024.
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Written by
Kate Marshall
Lead Investment Analyst

Kate leads a team of Investment Analysts and is a member of the Senior Research Team. She provides oversight and challenge to fund selection across all sectors on the Wealth Shortlist, and votes on all proposals.

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Article history
Published: 24th June 2024