Europe is the place to be for equity investors, according to analysts who flagged rising valuations and political risk in the U.S. market as drawbacks when compared to Europe's more stable geopolitical environment. In February — the first full trading month since Trump began his second term in office — the pan-European Stoxx 600 gained 3.3%, according to LSEG data, while the S & P 500 index lost 1.4%. Wall Street's tech-heavy Nasdaq Composite was down 4%, and the Dow Jones Industrial Average shed around 1.6% over the course of February. When it came to individual country indexes in Europe, London's FTSE 100 gained 1.6% in February, while Germany's Dax gained 3.8% on the month. The French CAC 40 rose by 2% last month, and Italy's FTSE MIB surged 6% throughout the same period. The moves followed a regional outperformance in January . There are various positive factors at play for European equities, according to Naeem Aslam, chief investment officer at London's Zaye Capital Markets. "There is a sense of relief in terms of tariff uncertainty — we know exactly where we are in relation to the Trump administration's [policies], and that has boosted sentiment," he told CNBC on a call. Last week, Trump said he would impose 25% tariffs on goods entering the U.S. from the EU. He said the specifics would be announced "very soon" and that the levies "will be on cars and all other things." Aslam acknowledged the previous threats from the president to slap tariffs on the bloc , but said when those threats left out specifics, it had been "very, very scary" for certain European sectors, such as the autos industry. "We know [now] exactly what to expect, and traders are ready to take the risk," he argued. "Price-to-earnings discount [in Europe] is 40% as of late 2024, so from that perspective too, this is a great place to be. We have seen much, much better earnings momentum in comparison to the fourth quarter of 2024 — that has further assured investors that, yes, [Europe] is the place they want to be." In addition, Aslam said some investors were shifting their portfolio allocations away from the U.S., with concerns lingering about the impact of Chinese AI developer DeepSeek and the state of the American economy. "If you look at the composition of the Stoxx 600, only 10% of the stocks are purely tech heavy," he said, referring to the January market rout triggered by the emergence of a Chinese AI model that was said to have been produced for a fraction of the cost of its major U.S. rivals. "You look at the S & P 500, you have a 30% tech heavy index composition. This has made investors start parking their capital in European markets." "The economic numbers are very much suggesting that the Federal Reserve is unlikely to cut interest rates," he added. "Over in Europe, there's a clear path for monetary policy easing — that is another massive tailwind from an investor's perspective." Dan Boardman-Weston, CEO and chief investment officer at BRI Wealth Management, agreed that in comparison to Europe, U.S. stocks are sporting a high price tag — thanks in part to the AI-fueled boom seen in recent years. "The trouble with the U.S. market is it's very expensive, and yes, technology companies have been growing incredibly [steeply] and we've seen a lot of earnings growth — but part of me does fear that maybe the whole AI thing will slow down somewhat, and earnings growth will slow," he said on a call. "Then, multiples will have to contract, and you won't see American markets trading on the punchy multiples that you have seen." Valuation risk and political risk were "probably the two big things that will hold American markets back," he said — while European stocks were set up to benefit from a possible peace deal for Ukraine , falling interest rates and some earnings expansion. "We think European markets will do relatively well over the coming months and years," Boardman-Weston said. "I do think over the medium term that the chances of European and U.K. markets outperforming American markets has probably increased, and that's probably the highest it's been in quite some time." Andrew Rymer, senior strategist at Schroders, said investors should consider their allocation to Europe. He told CNBC that while the possibility of tariffs escalating remained a risk, it was also a risky move for portfolios to be too U.S.-heavy. "Where investors' portfolios are dominated by the U.S., they risk missing opportunities elsewhere," he said. "European markets have encouraging earnings prospects and are benefitting from an upsurge in share buybacks, as well as trading on cheaper valuations."
