Secret outperformer: Dispelling the 'myths' about an unloved stock market

European equities have historically struggled to ignite the kind of investor enthusiasm enjoyed by U.S. stocks and certain fast-growing Asian markets. The continent has fewer high-growth companies, shallower capital markets and is thought to have a less compelling long-term earnings growth story.

A spike in governments' fiscal spending at the beginning of 2025, however, brought the market to life. This year, the story is more nuanced, but the pan-European Stoxx 600 index has proved remarkably resilient.

Europe's headline index tracks 600 large, medium, and small capitalization companies across 17 European countries, and is essentially the continent's equivalent of the S&P 500. The Stoxx 600 is up 10% in 2026 so far, slightly behind its North American counterpart, which has returned 13.5% over the same period.

How the Stoxx 600 has performed over 5 years. European markets tend to fly under the radar when compared with larger and more liquid U.S. markets, but Goldman Sachs last week attempted to dispel some of the "myths" about investing in Europe.

"Performance [in Europe] has been far more mixed than the market narrative, or most investors realize," the analysts wrote in a August 10 note. "Since 2022, European banks have considerably outperformed the Magnificent 7. Since the start of 2025 — and despite both the tariff shock and an energy supply crisis, Europe's Stoxx has outperformed the S&P 500."

Another "myth" cited by Goldman is the notion that Chinese competition is a major headwind for Europe's companies.

"The stock market is not the economy and the largest sectors — financials, pharma, tech, energy, utilities, telecoms, aerospace and defense — are not especially vulnerable to low-cost China imports," Goldman added. "Autos are just 1% of Europe's market cap."

The European autos sector has been much maligned, as the industry finds itself mired in a years-long structural crisis. Slowing demand for electric vehicles, lost market share to Chinese competitors and higher borrowing costs have created the perfect storm over the past five years, as sales volumes continue to slump well below pre-pandemic levels.

Then, the Stoxx Autos index is down 16% year-to-date. Volkswagen AG and Stellantis are among the worst performers, falling 27.6% and 51.9%, respectively.

BNP Paribas believes Europe is more likely to be an AI beneficiary rather than a developer, with the autos sector among those that stand to benefit.

"At this point the sector is so cheap that no one is really thinking about the potential upside in there," Sophie Huynh, portfolio manager and strategist at BNP Paribas Asset Management, told CNBC.

"It's about trying to understand when markets are going to start talking about this because you can sit on these deep value sectors for one or two years before the market consensus starts to realize it's going to work."

Huynh added that a lot of good news about U.S. consumption is already priced in, "so the momentum of the U.S. economy is slowing down when Europe has just started to pick up."

Goldman acknowledged that Europe is behind on several fronts, including data center rollouts, as well as frontier modelling, "all of which could have negatives for security or longer-term productivity and growth."

But the bank's strategists said that Europe being behind on the AI trade may not be such a bad thing.

The market provides a hedge for investors worried about some of the risks around AI, especially around China competition, they wrote.

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