Europe’s stock markets are showing resilience despite the ongoing Iran war, with the STOXX 600 index trading near record highs and investor inflows strengthening. European equities attracted $2.44 billion in the week to August 12, the largest weekly inflow since late February, according to LSEG/Lipper data.
European stocks have also benefited from stronger-than-expected economic data, improving corporate earnings and reduced exposure to volatility in global technology shares. The euro has risen about 3% since mid-June to above $1.16, reaching a three-month high.
Why are European markets performing strongly?
Investors have been encouraged by a relatively resilient European economy and clearer expectations for monetary policy compared with the United States and Japan. Citi’s European economic surprise index, which tracks whether economic data exceeds or falls short of expectations, has reached its highest level in more than three years.
Higher energy prices have also supported European oil and gas companies. STOXX 600 companies are expected to report 24.1% earnings growth for the second quarter, the strongest growth rate in almost four years, according to LSEG data.
How do European stocks compare with other major markets?
European shares have gained about 10% so far this year, compared with roughly 13% gains for both the S&P 500 and MSCI World index. The STOXX 600 is trading at around 15 times 12-month forward earnings, about 26% below the valuation of the S&P 500.
Analysts say the relatively lower valuations and broader sector exposure are helping attract investors seeking diversification beyond technology-heavy markets in the United States and Asia.