Love is undoubtedly in the air for European stocks on this Valentine’s Day.
Think about these figures. With a 9.1% gain so far this year, the STOXX Europe 600 index XX:SXXP closed Thursday at a record high. In 2025, Germany’s DAX index, DX:DAX, too reached a new high, rising 13.6. Germany’s software behemoth SAP (XE:SAP) (SAP), the largest computer business on the continent by market capitalization, has increased 18.6% in the same time frame. The S&P 500 SPX on Wall Street is up 4% in the meanwhile.
Here are two more significant figures. According to FactSet, the STOXX Europe 600 has a forward price to earnings ratio of only 14.3, compared to 22.1 for the S&P 500.
Despite impending tariffs and economic stagnation in the largest economies in the region, many analysts are pleased to advise investors to continue purchasing European stocks due in large part to this valuation discrepancy. “Europe is no longer a value trap,” reads the BCA Research editorial board.
However, despite being favorable for European stocks, the valuation difference has persisted for many years, according to Andrew Garthwaite, global equity strategist at UBS.
The possibility of additional interest rate cuts by the European Central Bank, early indications of improvement in the purchasing managers surveys conducted by the eurozone, and an overall yield (dividend and buybacks) that is 1.3 percentage points higher than the U.S., which has historically been 0.8 percentage points lower, are additional factors that have supported European stocks for some time.
In light of these, Garthwaite has outlined the elements that he believes are novel and that lead him to give Europe a “overweight” ranking.
The first is UBS’s composite scorecard (see below), which uses investor positioning, valuation, economic momentum, monetary conditions, regional risk appetite, and susceptibility to macro scenarios to rate a market’s attractiveness.
Europe is now in second position. “The slippage in the U.S. and improvement in Europe is largely on the back of moves inrelative earnings revisions and relative risk appetite,” states Garthwaite.
Second, he notes that while European earnings revisions are increasing in comparison to their worldwide counterparts, markets are discounting a decline in the former’s earnings momentum.
Furthermore, UBS predicts that the euro would weaken even more, dropping to $0.99 by the end of 2025, which would be consistent with better earnings revisions. According to UBS, a 10% decline in the euro might result in a 9% boost in European earnings per share.
The two largest economies on the continent will then experience less fiscal tightening than initially anticipated. While the recent budgetary tightness in France was 0.6% of GDP, far less than the 1.1% that had been recently recommended, the German election on February 23 may produce a government that implements fiscal relief of 0.7% of GDP.
Last but not least, recent news reports indicate that a cease-fire in Ukraine is becoming more likely. The market is responsible for assessing the financial ramifications of this, and Garthwaite believes that businesses will benefit from the potential $600 billion, or roughly 3% of the eurozone GDP, needed to repair the broken nation.
“There could be a Marshall-style plan or common bond type plan (similar to the EU Recovery Fund) to fund this,” according to him.
Energy prices in Europe would probably drop as well if there was a cease-fire. According to the UBS energy team, a settlement that restored the flow of Russian gas might result in a more than 50% decrease in the price of natural gas in the region. According to UBS, businesses that still have exposure to Russia, even if it has been written off, would profit from any partial reengagement.
As both consumers and corporations are aware that they are past the energy shock, we on the global equities strategy team believe that a cease-fire in Ukraine might have a significant positive effect on confidence. According to Garthwaite, there is also a justification for American funds in particular to become back involved in Europe.
The imposition of 10% general tariffs on European goods to the United States and a decline in China’s economy pose significant risks to its overweight Europe call.
However, UBS advises purchasing these stocks because they are better and less expensive than their peer group (where accessible, U.S. listing tickers are given). Schneider (FR:SU), Siemens (XE:SIE), Intesa Sanpaolo (IT:ISP) (ISNPY), Erste (AT:EBS) (EBKDY), Ryanair (IE:RYA), Zalando (XE:ZAL) (ZLDSF), and Essity (SE:ESSITY.B) (ETTYF). Stora Enso (FI:STERV) (SEOAY), easyJet (UK:EZJ) (ESYJY), Coca-Cola HBC (UK:CCH) (CCHGY), Wizz Air (HU:WIZZ) (WZZAF), and LPP (PL:LPP) are also included in a Ukrainian cease fire basket.
The Global X DAX Germany ETF DAX allows U.S. investors to mirror the DAX, while the iShares Core MSCI Europe ETF IEUR provides a broad exposure to Europe.
