When investors think about Europe, the same themes usually come up – slow economic growth, political tensions, energy challenges and even rising competition from China.
There's truth in some of those concerns. But the European stock market is potentially quite different from these perceptions that are based just on the past.
Many of the region's largest companies generate most of their revenues outside Europe, corporate profitability has improved, and the makeup of the market has evolved during the past two decades.
So, could investors be underestimating what Europe has to offer?
This article is for information only and not personal financial advice. Investing can help your money grow, but the value of investments can rise and fall, so you could get back less than you put in. Investing is for the long term, typically 5 years or more. If you’re not sure what’s right for you, a financial adviser can help.
Europe’s stock market is more global than its economy
Investors sometimes dismiss Europe because they confuse the economy with its stock market.
Economic growth does matter, but many listed European companies are global businesses whose fortunes are not tied solely to spending by European households.
About 60% of revenues generated by European-listed companies now come from outside Europe. That's up from about 40% during the global financial crisis. In fact, a quarter of revenues made by companies in the STOXX Europe 600 market come from North America.
In other words, European share prices aren’t based purely on the success of the European economy.
The region's largest listed businesses include pharmaceutical companies, industrial firms, banks, and technology companies that serve customers around the world.
That includes global leaders like ASML in semiconductors, Roche and Novartis in healthcare, and SAP in software, alongside long-established names like Nestlé and Heineken that remain familiar to many investors. Their success often depends as much on global demand as it does on conditions at home.
That’s been evident recently.
During the past year to the end of August 2026, the European market has marginally outperformed the US, with a return of 20.32%* compared with 19.96%. Investor perception of a region does not always keep pace with what’s happening in markets. Remember, however, that past performance isn’t a guide to future returns.
Earnings growth has started to improve
Earnings growth in Europe was weaker in the past.
According to BlackRock, earnings growth across European markets was effectively zero between 2007 and 2019. If companies aren't growing earnings, then it's difficult for a market to deliver attractive long-term returns. That's one reason that many investors gravitated towards the US, where corporate earnings growth was stronger.
More recently, though, the picture has started to look more positive.
Many European companies have been reporting better-than-expected profits, and analysts have been increasing their forecasts for future earnings. Analysts expect earnings growth of around 17.8% in 2026. That suggests that company performance in Europe is improving, although these forecasts can still change as these figures aren’t guaranteed.
Overall, the earnings backdrop looks healthier than the one that shaped perceptions of Europe over much of the previous decade.
Europe’s market has changed over time
Ask many investors what comes to mind when they think about European stock markets, and they'll often mention banks, car manufacturers, and industrial businesses. Those sectors remain important, but the market has evolved over time.
Take the automotive sector. Although competition from Chinese manufacturers and the challenges facing German industry sometimes make headlines, auto companies currently account for about only 1% of the European stock market.
European banks are also often viewed as part of "old Europe", seen as offering limited growth potential. Yet European bank shares have outperformed US mega-cap technology stocks in the three years to 31 August 26, a surprising outcome given the dominance of artificial intelligence (AI) and technology-related investment themes in recent years.
That doesn't mean that investors should rush to buy bank shares. But it is another reminder that the assumptions that many investors hold about Europe aren't always reflected in market outcomes.
Today's European market offers exposure to a diverse range of sectors, including healthcare, industrial automation, infrastructure, defence, utilities and financial services. This provides important diversification alongside other markets like the US that are more heavily tilted towards areas including AI and technology.
The role of Europe in a diversified portfolio
The investment case for Europe is not necessarily about predicting that it will beat other markets. It's about recognising that investors can benefit from exposure to different regions, sectors and drivers of return.
For investment portfolios that have become increasingly concentrated in the US or technology, after a prolonged period of strong performance, Europe offers access to different opportunities.
Many of the challenges facing the region are well understood, but people pay less attention to the changes that have taken place beneath the surface. That's why some investors could be underestimating Europe.
Here are some fund ideas for investing in Europe from our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential.
Investing in funds is not right for everyone. Investors should invest only 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 that any new investment forms part of a long-term diversified portfolio.
BlackRock European Dynamic
Blackrock European Dynamic is one option for active exposure to European companies – this means that it aims to beat the broad European stock market over the long term.
The fund’s managers look for businesses where they believe future earnings growth is not yet fully reflected in the share price. That fits with one of the key themes in Europe today – the region is often viewed through the lens of slow economic growth, but many listed European companies are global businesses with stronger growth prospects than the headlines suggest.
The fund has a growth bias, but it’s flexible, so the managers can invest across different sectors where they believe the best earnings opportunities can be found. This currently includes semiconductor businesses ASML and ASM International, alongside financial companies like UniCredit and ABN AMRO. It invests in a relatively small number of companies – 42 as at 31 July – which means that each one can have a meaningful impact on performance though it does increase risk.
Legal & General European Index
This fund could be considered by investors who want a simple way to invest across the broader European stock market.
It aims to track the performance of European shares, rather than relying on a fund manager's trying to beat the stock market by choosing individual companies. This means that investors get exposure to many of the themes discussed above, from globally focused European businesses to sectors that are less common in the US market.
As a tracker fund, it can also be a lower-cost way to add European exposure to a diversified portfolio.
The fund can lend some of its investments to others in exchange for a fee in a process known as stock lending. This helps to offset some of the costs of running the fund, though it adds risk.
Annual Performance Growth
August 2021 to August 2022 | August 2022 to August 2023 | August 2023 to August 2024 | August 2024 to August 2025 | August 2025 to August 2026 | |
|---|---|---|---|---|---|
BlackRock European Dynamic | -24.93 | 20.03 | 14.37 | 5.00 | 14.33 |
Legal & General European Index | -11.95 | 16.14 | 14.72 | 10.99 | 20.62 |
IA Europe Excluding UK | -14.42 | 13.46 | 13.58 | 8.68 | 17.77 |
FTSE World Europe ex UK | -12.26 | 14.93 | 14.88 | 10.03 | 19.93 |