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European stocks have outpaced the US in the month since President Donald Trump’s inauguration, as hopes rise that the region might escape a worst-case scenario trade war.
The benchmark Stoxx Europe 600 index has gained 5.6 per cent since January 17, the last trading day before Trump re-entered the White House, while on Wall Street the S&P 500 has risen 2.5 per cent and the tech-heavy Nasdaq Composite has advanced 2.2 per cent.
The unexpectedly strong performance of European indices has been driven by Trump’s decision not to impose immediate tariffs on the EU, as well as the prospect of peace talks in Ukraine, said analysts.
The EU had been braced to be a major target of Trump’s America First policies after the US president pledged to impose across-the-board tariffs on the bloc, but none have yet taken effect.
“For Europe, the trade war bark has so far been worse than the bite,” said Andrew Pease, chief investment strategist at Russell Investments. “But the other stories are an upward trend in bank lending over the past year” and a lowering of interest rates by the European Central Bank, he added.
European stocks are enjoying their best start to a year since the late 1980s and their strongest performance relative to the US in almost a decade, Bank of America analysts said in a note on Wednesday.
The gains come after a prolonged period of Europe underperforming the US, as a huge rally in Big Tech stocks lifted Wall Street in recent years. Trump’s election was the most recent catalyst, pushing European equities to lag the US by the widest margin on record, amid expectations of a bruising trade war.
Europe’s recent strong performance comes despite signs of stagnation in the continent’s major economies and worries over the region’s longer-term security as the US threatens to pull back military support.
“We were not overweight Europe at the start of the year — [its strong performance] did catch everyone by surprise,” said Daniel Morris, chief market strategist at BNP Paribas Asset Management.
The rally has been helped by European fund managers increasing their allocations since the start of the year, with a survey this week showing that the proportion saying the region’s stocks were undervalued was at a six-year high.
Sectors including financials, defence — boosted by the prospect of increased spending by European governments — and luxury stocks have risen on the lack of day-one tariffs.
Rheinmetall, Europe’s largest ammunition maker, is up 34 per cent in the past month while luxury maker Richemont is up 11 per cent.
The euro, meanwhile, has gained 1.6 per cent against the dollar over the past month.
Analysts at UBS last week upgraded their allocation to continental Europe to overweight, citing the tailwind of lower energy prices in the event of an end to the Russian invasion of Ukraine, looser fiscal policy and stronger corporate earnings.
Hong Kong has been the best-performing major index since Trump’s inauguration, with the Hang Seng index rising 15 per cent since January 20, led by a rally in Chinese technology stocks listed in the territory following the DeepSeek shock.
China’s mainland CSI 300, however, has advanced just 3 per cent. The rest of Asia has been more flat, with Japan’s broad Topix up 2 per cent and India’s Nifty 50 down 1 per cent.
However, some analysts expressed doubt over whether Europe’s performance could last through the year, especially if US tariffs are simply delayed rather than diluted.
Trump has warned that imports from Europe may be next in line after the US moved to impose 25 per cent tariffs on Canadian and Mexican imports and an additional 10 per cent levy against Chinese goods.
The region’s stock markets fell on Wednesday after the US president said he was considering imposing 25 per cent tariffs on imports of cars, pharmaceuticals and chips. On Thursday the Stoxx 500 was up 0.2 per cent.
“The muscle memory for most investors is that European outperformance can be only for very short periods by small amounts,” said analysts at UBS.
