Peter Rice met with 11 managers in London in July. His conversations reflected a broadly constructive view on European equities, with attention to improving cycle indicators, persistent valuation discounts, and the global nature of revenue exposure. Sentiment indicators and positioning trends suggest emerging contrarian opportunities.

Executive Summary

• European equity valuations remain attractive at roughly 15x earnings and continue to trade at a significant discount to the US.

• International value factors are improving, while sentiment indicators show that many investors have treated the “European trade” as complete, creating a favourable backdrop for contrarian positioning.

• Revenue exposures show that 70% of MSCI Europe revenues originate internationally, underscoring that European equity performance depends on global dynamics as much as domestic conditions.

• Overall, managers have a constructive stance on European equities driven by improving cycle indicators, reforms and persistently attractive valuations, while being aware of external risks such as US valuation extremes, concentrated market leadership and politically driven inflation dynamics.