Deutsche Bank anticipates a "tactical outperformance" of European stocks in 2025, citing improving macroeconomic data, lower interest rates and potential upside from China as key catalysts.
Buying opportunity
Deutsche Bank head of European equity and cross-asset strategy Maximilian Uleer highlighted that current investor pessimism in Europe presents a buying opportunity.
Uleer noted that political stability in Europe, including Germany’s snap elections, could improve sentiment, while the eurozone’s economic surprises and stronger retail sales position the region for recovery.
In contrast, the US market, buoyed by the rise of the "Magnificent Seven" tech stocks, has experienced a decade of dominance.
However, its heavy concentration in a few companies — 33% of the total market capitalisation — raises concerns about sustainability. Nvidia, for instance, has surged 410% in two years, contributing significantly to the S&P 500's 50% gain.
Uleer also flagged potential risks for US equities, including higher bond yields following a hawkish pivot by the Federal Reserve and the possibility of inflationary pressures from anticipated Trump administration policies.
Tactical outperformance
“While we also expect US equities to perform well this year, we see various triggers for a tactical outperformance of European equities in 2025,” said Uleer, adding that lower European bond yields and stronger December quarter earnings could drive this trend.
Additionally, Europe’s ties to China position it to benefit from potential economic stimulus announcements at the National People’s Congress in March.
With a focus on relative valuations, Deutsche Bank has recommended an overweight position on European stocks against their US counterparts.