Investor interest in European stock markets has seen a significant reversal in 2025, according to analysis from UK investment platform Hargreaves Lansdown (HL). Flows into European funds on the HL platform reached £69.4million in the year to date, compared with net outflows totalling £207million during the same period in 2024.
According to Hargreaves Lansdown, this growing interest suggests a potential shift in sentiment, with some investors growing wary of high valuations in US markets. The firm also pointed to institutional changes, such as New Zealand’s Super Fund increasing its investment allocation to European shares while reducing exposure to the US.
Shifting sentiment and valuation gaps
Kate Marshall, lead investment analyst at Hargreaves Lansdown, suggested that European stocks offer value and diversification. The analysis noted that European stocks currently trade at a discount compared to their historical figures and to their US counterparts.
While this valuation gap reflects lingering concerns around economic growth and political risks in Europe, Hargreaves Lansdown suggested that if sentiment towards the region improves, share prices could benefit. The firm’s analysis points to several geopolitical factors that could support growth in specific European sectors.
Geopolitical factors influencing investment themes
The report highlights increased defence spending across the continent as governments respond to ongoing security concerns, which is supporting growth in aerospace, defence, and industrial sectors.
Energy security was identified as another key theme. Following the 2022 energy crisis, the EU has increased investment in renewable energy, power grid upgrades, and LNG infrastructure to reduce reliance on external energy sources. According to the analysis, Europe now invests ten times more in clean energy than in fossil fuels, potentially benefiting utilities and clean energy companies.
Additionally, Hargreaves Lansdown pointed to a growing emphasis on reducing reliance on overseas suppliers for critical goods like pharmaceuticals and semiconductors, which could impact manufacturing and innovation sectors in the long term.
Fund analysis provided by Hargreaves Lansdown
As part of its analysis, Hargreaves Lansdown highlighted three funds for investors considering European exposure:
BlackRock Continental European Income: This fund focuses on larger, established European businesses and aims to provide income alongside growth. The managers, Brian Hall and Stuart Brown, reportedly focus on cash-generative businesses to provide resilience during market downturns. Current sector focus includes industrials, financials, and utilities.
Barings Europe Select: Managed by Nick Williams, this fund invests in smaller European companies. Hargreaves Lansdown noted that European smaller companies offer potential value, and a closure of the valuation gap could lead to share price growth. The fund manager employs a ‘Growth at a Reasonable Price’ (GARP) investment style.
Legal & General European Index: This tracker fund aims to mirror the performance of the FTSE World Europe ex UK Index. It offers broad exposure to 548 large European companies across sectors such as financials, industrials and healthcare. Hargreaves Lansdown suggested this type of fund can serve as a low-cost starting point for long-term growth investing.
