Comeback for Europe’s Bull Market?

Summary

Marina Zavolock, Morgan Stanley's Chief European Equity Strategist, argues that the European equity rally has room to continue. Europe has broken a decade-long structural discount versus the US, driven by AI-exposed sectors and diversification flows amid US AI volatility. She highlights misperceptions about European growth and recommends overweight positions in semiconductors, metals & mining, banks, capital goods, and utilities.

• European equities have kept pace with the S&P YTD, largely due to AI-exposed sectors like semis and metals.
• Diversification flows into Europe are picking up as US AI volatility makes investors seek broader exposure.
• Europe broke out of a structural valuation discount versus the US, and the narrowing trend is expected to persist.
• European earnings growth is healthy at over 16%, despite low GDP growth, thanks to global revenue exposure.
• Marina Zavolock’s sector model ranks semis, metals & mining, banks, capital goods, and utilities as top picks.
• European banks are highlighted as a cheap diversification play with strong distributions, earnings growth, and AI adoption.
• Utilities are underowned and poised to benefit from AI linkages and a renewed push for renewables.