Markets Update February 2025 - Investors should not ignore European equities

The Chinese company DeepSeek caused turbulence on stock markets around the world with the release of its new AI chatbot at the end of January. However, the global stock markets quickly overcame the shock and continued their positive trend. Although there are justified doubts about the costs stated by DeepSeek for the training and operation of its language model: The new developments impressively point the way forward. Until now, the focus has been on performance at all costs, with cost and energy efficiency hardly playing a role. However, in order to facilitate access to high-performance voice models and improve market penetration - which would also benefit the major US technology companies at the bottom line - progress in these areas is essential.

European equities set the tone

Meanwhile, hopes of a lasting ceasefire in Ukraine were a strong driver for the markets - particularly in Europe. Investors have therefore been presented with an unusual picture in recent weeks: It is not US technology stocks that have set the tone - it is European stocks, often neglected by investors, that have topped the performance rankings since the beginning of the year. On the one hand, the new optimism about peace has caused the risk premium for Europe to melt away. On the other hand, prices are already reflecting the fact that European industrial and basic materials stocks in particular would benefit considerably from the reconstruction of Ukraine. Together with other organizations, the European Commission has calculated that the costs of rebuilding the country could amount to USD 486 billion over the next ten years. Not surprisingly, European shares attracted a great deal of interest, as the high capital inflows show.

But can European equities develop a sustainable outperformance beyond the tactical perspective? Structural problems and institutional obstacles such as excessive bureaucracy speak against a real comeback for Europe's stock markets. However, these challenges are well known and have been priced in by market participants. It is not for nothing that valuations are significantly lower than in the USA. In addition, the economic and institutional structural problems here are often transferred directly to the stock markets. However, this is a misunderstanding, because: Listed European companies generate a significant proportion of their sales and profits outside their home continent.

In summary, Europe should not be neglected by investors and should be taken into account in the investment strategy. Especially if the AI hype does not continue with the intensity of recent years, the chances of a longer outperformance phase for European markets are good.