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European Equities Outlook Q1 2025
Looking forward after a good performance in 2024 amid a difficult environment
In 2024, European equities posted a second consecutive year of strong performance despite several significant headwinds. Indeed, an unsteady political environment, a weaker than expected recovery in China, and the ongoing interest rate rollercoaster all presented issues for European corporates. So how did we end up with a positive performance? Several factors lie behind this. First, undemanding valuations at the start of the year allowed some room for rerating on the back of easing concerns regarding recession and a possible hard landing. Second, earnings growth has been resilient in most sectors and disappointments quite isolated . And third, dividend payouts have remained very attractive – around 3.5% in 2024 for MSCI Europe.
Key outlook takeaways
- Economy: business as usual, unfortunately. We expected low growth in most major European economies, but corporates will benefit from growth outside Europe.
- Undemanding valuations: any stronger economic recovery is, at these valuations, more a “free option”.
- Political environment: clear risks, but also opportunities.
- Earnings: we expect growth again in 2025, though from lower than anticipated levels, and supported by a weak euro.
- Sectors: observing whether cyclicals keep outperforming will be crucial, and maintaining diversification to improve risk/reward key.
Allianz Global Investors
Thursday 6th February 2025
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