Is now the time to buy European stocks?

European equity markets have attracted fresh interest in 2025 as valuations look appealing and macro conditions improve. Many U.S. and global investors note that European stocks trade at much lower price/earnings multiples and pay higher dividends than their U.S. counterparts. For example, the S&P 500 is near a 19x forward P/E, whereas many leading European firms trade around 10–15x. At the same time, Europe’s dividend yield (roughly 3%+) is far above the ~1–1.5% typical in the U.S. market. A strengthening euro in 2025 has already boosted unhedged returns: the Euro STOXX 50 index is up about 10% in euro terms, which translates to roughly +20% in U.S. dollars thanks to currency gains. In short, Europe today offers valuation and income advantages that have become hard to ignore.

• Undervalued market: Europe’s benchmark indices trade at deep discounts to U.S. peers – around 15xforward earnings vs. 19–20x for the S&P 500.

• Higher yields: Dividend yields on Europe stocks are roughly double U.S. levels (∼3% vs∼1–1.5%). This income cushion makes European equities more defensive in volatile markets.

• Currency tailwind: The euro’s ~10% rally year-to-date adds another boost for dollar-based investors (e.g. the Euro STOXX 50 has delivered ~+20% total return in USD terms).

These factors suggest European equities offer both value and yield leverage. As WisdomTree notes, Europe is “a source of underappreciated innovation [and] defensive yield,” not just a throwaway diversifier. Many global growth themes – from advanced manufacturing to digitalization – play out in Europe, often at bargain prices.

Economic and policy backdrop

The macro outlook for Europe is stabilizing. The European Commission projects ~1.0% GDP growth for the EU in 2025, roughly on par with 2024. Crucially, inflation is easing faster than expected: EU headline inflation is forecast to reach the ECB’s 2% target by mid-2025 and then average ~1.7–1.9% in 2026. With energy prices down and a stronger euro, underlying inflation pressures are subsiding. Indeed, ECB President Christine Lagarde recently noted inflation is already “just below 2%,” and indicated the ECB is now “in a good position” – effectively signaling a pause in rate hikes. In practice, the ECB has begun cutting its key rates (with the deposit rate around 3–3.5% as of mid-2025) and expects only one or two more reductions if the outlook holds. The era of aggressive tightening appears over, helping ease financing costs for companies.

Other policy tailwinds are emerging. Germany, Europe’s largest economy, is poised to unleash significant fiscal stimulus (recent plans total roughly €500 billion over 12 years) focused on infrastructure, climate and defense. Neighboring EU countries are also raising defense budgets in response to geopolitical risks. This new spending should lift demand for machinery, construction and technology over the medium term. At the same time, Europe continues its energy transition: the EU’s REPowerEU plan targets an end to all Russian oil and gas imports by 2027, which while disruptive also drives massive investment in renewables, grids and efficiency. Lower global oil and gas prices (Brent crude ~US$60/barrel in mid-2025) and continued windfall taxes in some countries are feeding through to reduced costs for businesses.

Key points on the outlook include:

• Growth: Modest but positive. The EU economy grew ~1.0% in 2024 and is expected to expand around 1.0–1.4% in 2025.
• Inflation: Heading toward target. Headline inflation should fall near 2% by mid-2025, helped by lower energy and import prices. Core inflation is easing too, allowing more policy flexibility.
• Interest rates: ECB easing. With inflation cooling, the ECB has begun cutting rates (deposit rate ~3.0– 3.5%). Markets see just one or two more cuts for 2025. Lagarde’s comments suggest a possible pauseis near, with Europe now “well-positioned” to hold rates steady if no shocks emerge.
• Fiscal policy: More stimulus. Germany has signaled it will relax its debt brake to fund infrastructureand defense, and other EU governments are reviewing higher spending. This contrasts with manyother regions and could inject fresh demand into Europe’s economy.
• Energy trends: Cheaper and greener. After a spike in 2022–23, global energy prices have rolled over. Meanwhile, European countries accelerate renewables and interconnector projects under the REPowerEU framework, improving energy security and supporting utility and industrial sectors.

Overall, the economic and policy environment has turned cautiously supportive for Europe. Disinflation is under way (even prompting additional rate cuts), and significant fiscal initiatives are boosting sectors like construction, defense and clean energy. These conditions should help corporate revenues and profits over time, after several lean years.

Corporate earnings trends

European corporate earnings are showing early signs of bottoming and re-acceleration. According to Refinitiv data, consensus forecasts for Q1 2025 now call for roughly +0.4% year-on-year growth in eurozone company profits, a clear rebound from the 3–4% declines seen a year earlier. In fact, nearly 60% of the STOXX Europe 600 companies that reported have beaten earnings estimates so far. Revised expectations for revenues (+1.9% vs +1.4%) and profits turned positive as investors eyed easing trade tensions. Seven of ten broad sectors are now expecting higher profits than a year ago; real estate companies are actually reporting the fastest growth (>20%), while only energy is lagging (down ~28%).

These trends reflect improving demand. The anticipated pauses in global trade wars (U.S. tariffs under negotiation, Chinese trade talks advancing) have lifted exporters. Industrial and financial firms benefit from domestic stimulus and higher investment, and consumers are spending again after saving through the inflationary period. If broader forecasts hold, Europe’s earnings should continue to outpace recent declines. In sum:

• Earnings rebound: Analysts now expect positive profit growth (0.4% YoY) for Q1 2025, up from declines in 2024.
• Beat rates: A majority of firms are beating estimates (58% of STOXX 600 reporters), suggesting analysts were conservative.
• Sector mix: Most sectors are showing improvement versus last year. Cyclical industries (real estate, autos, industrials) and financials are leading, while high-energy companies still face a tough comparison.

While uncertainties remain (e.g. any renewed trade skirmish or China slowdown could weigh on exporters), the near-term earnings outlook appears constructive. This can help underpin equity valuations if realized.

Geopolitical and macro factors

Global and political trends are also relevant. Inflation in Europe is easing partly due to falling commodity prices and a firm euro, as noted by policymakers. Supply chains are slowly rebalancing: firms are diversifying sources away from any single country, a trend that benefits EU manufacturers integrating parts from multiple regions. At the same time, the EU is proactively managing trade risk. In mid-2025, the EU’s trade chief traveled to Washington to negotiate with the U.S., aiming to avert higher tariffs and secure a “fair deal for both sides” on steel, autos and other imports. The EU has made clear it will not weaken its landmark tech regulations (Digital Markets and Services Acts) to placate the U.S., so some tensions may linger. These talks, if successful, could prevent a major drag on exporters.

A key positive driver is energy independence. The EU has adopted a formal roadmap to cut all Russian energy imports by 2027. This aggressive pivot is “making a definitive statement” about Europe’s sovereignty. In practice, windfall spending on renewables, hydrogen and interconnectors is accelerating. Lower reliance on imported fuels will eventually stabilize energy costs and mitigate geopolitical risk. In the short run, easing gas and oil prices are already translating into lower inflation and cost of goods.

Defense and security issues also impact markets. Europe is substantially raising military budgets and arms orders in light of global conflicts. The NATO summit in mid-2025, for example, highlighted plans for large European defense spending. These efforts benefit local defense contractors and industrial equipment makers. (WisdomTree even notes a “historic re-rating” of European defense names under rising NATO budgets.)

In summary, the geopolitical context is mixed but increasingly supportive of Europe in the long run: inflation is normalizing, energy ties with Russia are ending, and defense–related investment is rising. Trade jitters persist, but ongoing negotiations aim to reduce tariffs. These dynamics underscore Europe’s drive toward greater resilience, which can in turn create new investment opportunities.

Diversification and relative performance

Adding European stocks can meaningfully diversify a global portfolio. Compared to U.S. benchmarks, European equity indices have a very different sector profile. For instance, the Euro STOXX 50 is weighted heavily in financials (24% of the index) and industrials (18%), whereas U.S. large-cap indices are dominated by technology (∼32%) and communications. In practice this means European equities react differently to economic shifts (e.g. more tied to cyclical industries and commodities). Moreover, Europe offers exposures that U.S.-centric portfolios lack (luxury goods, energy infrastructure, European utilities, etc.).

These differences have shown up in 2025’s market moves. BlackRock reports that international equities (led by Europe) have sharply outperformed U.S. stocks in Q1 2025 – the largest gap in two decades. January 2025 saw Europe’s best monthly lead over the U.S. in over ten years. A weaker dollar over the period amplified this: European stocks gained on both local fundamentals and currency effects. (According to J.P. Morgan, a +10% euro gains delivered roughly +20% USD returns on unhedged European shares year-to-date.)

By contrast, much of Asia (ex-Japan) is dealing with slower growth, regulatory headwinds or credit issues. China’s rebound has been uneven, and U.S.–China tensions weigh on Chinese technology and trade. While Asia has its own positive catalysts (e.g. rapid AI adoption in Asia-Pacific companies), Europe’s case is more straightforward: it is rallying on valuations and policy support.

In practice, a modest allocation to Europe can reduce portfolio risk through sector/region balance. A diversified approach means U.S. technology underperformance can be offset by gains in European banks, industrials or commodity stocks. The strong euro acts like a partial hedge for U.S. investors. As one BlackRock study notes, with Europe still underweighted by global funds, any further inflow could extend the rebalancing rally.

Provenance funds’ participation

Provenance Global Exposure SICAV p.l.c. (“Provenance”) offers UCITS funds that aim to capture broad global trends—including those in Europe—through diversified portfolios. For example, the Provenance Harmony Fund is managed to preserve capital and achieve long-term growth by investing in a diversified portfolio of collective investment schemes (UCITS funds and ETFs) across multiple countries and sectors. Similarly, the Provenance Dynamic Fund invests in a wide array of target funds (ETFs/UCITS) spanning various industries, fund sizes and geographies. In effect, both funds seek exposure to major themes – such as industrial recovery, energy transition and innovation – via broad, multi-asset baskets.

These Provenance funds aim to help investors participate in the opportunity set described above, while managing risk through diversification. By allocating to Harmony or Dynamic, an investor can gain exposure to European equities (and other markets) in a balanced way. For instance, both funds hold global equity and fixed-income funds, limiting individual stock risk. This means any upside from European stocks’ rally or dividend streams is pursued alongside risk controls. In short, Provenance’s strategies are designed to try to harness Europe’s value and yield advantages indirectly, rather than betting on a few sectors or stocks.

Conclusion

Europe today combines several attractive features – low valuations, decent yields, easing inflation and targeted policy support – that make it worth a fresh look. While global uncertainties remain (e.g. tradewar risks, China’s growth, geopolitical conflicts), a selective exposure to European equities can enhance portfolio balance. As WisdomTree observes, Europe in 2025 is “not U.S.-exclusive” in its drivers and has become an “essential complement” to U.S. markets. For investors seeking to diversify and capture potential upside, allocating a portion of equity capital to Europe via a diversified vehicle can be prudent.

Provenance’s funds aim to help investors access this opportunity set in a risk-conscious way. The Harmony and Dynamic Funds leverage broad, multi-sector portfolios to participate in trends like industrial modernization, energy independence and global trade realignment. Investors interested in these themes should consider discussing European equity strategies with their advisors or Provenance representatives.

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