After years in the relative doldrums, the European stock market enjoyed a sizzling 2025, when the STOXX Europe 600 climbed 16.7 per cent and clocked its best annual performance since 2021. That year ended with near record market highs, and while returns have moderated in 2026, they still stood at nearly 10 per cent through October—a respectable showing for a market that basically moved sideways for much of this millennium.
Given ongoing geopolitical turmoil and a spicy U.S. market competing for attention, the question is whether investing in Europe is still a solid bet. And that issue will play out in the context of apparently closer ties between Canada and the European Union. The most recent example was the EU-Canada Summit that just wrapped up in Montreal, where the two sides agreed to pursue “an alliance for the future.” But could a cozier economic and political relationship translate into more enthusiasm for European equities among Canadian investors?
Maybe so. Investment experts we spoke to see plenty to like in European equities, from attractive valuations to improving growth prospects.
Dull no more
They acknowledge that it hasn’t been an easy road for Europe. Arguably, perhaps, its economy has never been as dynamic or as growth oriented as the United States, and throughout the 2000s the region has grappled with recurring crises—the Great Financial Crisis followed by the sovereign debt crisis, followed by Brexit and then by COVID, and then by war in Ukraine. But recently, after years of sluggish growth, signs of a renewed push for competitiveness have begun to emerge.
In a landmark 2024 report, former European Central Bank president Mario Draghi warned that Europe was falling behind the U.S. and China and called for major investment in innovation, industry and the energy transition. To varying degrees, political leaders have answered the call. Germany, in particular, added to the momentum in early 2025 with a major increase in infrastructure and defence spending. Together, these developments have been part of an evolution that has helped restore investor confidence.
Today, Richard McGrath, Dublin-based executive director and head of investments at AGF International Advisors, says Europe offers good opportunities, especially for investors seeking value and diversity.
You don’t have to stress about sector weightings or country weightings too much. Just avail of the overall opportunity.
Richard McGrath
McGrath sees European stocks as an attractive buy, largely because they trade at a discount to their U.S. counterparts while delivering nearly as much earnings growth. He says he favours value-oriented companies across multiple sectors, including raw materials, healthcare, consumer staples and utilities.
He points out that Europe offers an appealing way to diversify portfolios that might be heavily weighted toward U.S. technology stocks. “In Europe, the technology weighting is only 10 per cent of the index,” he points out, “so therefore that gives you kind of broader diversification.”
For McGrath, investing in Europe isn’t necessarily about picking winning sectors or countries, or necessarily beating the red-hot U.S. market in the short term. It’s about taking advantage of the broader opportunity and adding something different to the mix. “I don’t think you have to stress about your sector weightings or country weightings too much,” he says. “Just avail of the overall opportunity.”
Keeping options open by investing in Europe
McGrath isn’t alone in seeing the potential. Jeff Noble, director, private wealth family office, with BDO Canada LLP in Toronto, says opportunities are emerging as Europe rethinks its industrial priorities. “I think there’s an interest in defence, renewable energy, and real estate,” he adds. He points to Europe’s push to beef up its defence industry, including the possibility that some struggling auto plants may be repurposed to produce military equipment.
Some Canadian families have a more personal reason to keep money in Europe. Noble says many of his clients have European roots and they are interested in maintaining those connections, particularly if they own property there.
He’s also seeing families move capital from Canada to Europe to give their next generation options, whether that’s relocating or spending part of the year on the Continent. “Having some capital outside of Canada makes that easier,” he says.
Europe isn’t the only market making a play for investors’ attention. The U.S. bull market, though showing signs of slowing, remains a tough act to follow. “It’s a very difficult market to bet against,” says Noble.
He is seeing some capital drift back to the U.S., largely from investors who made what he calls reactionary portfolio changes in response to Trump’s policies. Some of that money moved into Europe during its 2025 rally; now, some of those investors are taking their money back stateside.
For his part, McGrath sees investors keeping their existing U.S. holdings, but not necessarily investing more. “I think maybe people are leaving the money that they have in there, and any new money is going elsewhere,” he says.
How much risk is priced in?
Investing in Europe has its risks. High oil prices and the region’s reliance on imported energy worry investors, but McGrath believes some of the concern is overstated.
He points out that Russia’s invasion of Ukraine four years ago forced Europe to rethink its energy supply. Since then, it has diversified energy sources, expanded renewables and electrification and seen demand fall, partly because some energy-intensive industries have scaled back or relocated.
“We’ve reduced the demand, diversified the supply,” says McGrath, adding that he believes these changes make Europe less vulnerable to energy shocks than investors might assume.
Political uncertainty is another concern. McGrath points to the protests and political turbulence in countries such as France, Italy, Spain and Germany, but he views much of this as familiar territory rather than a reason to lose sight of the bigger picture.
“I know Europe has its risks, but it’s not like other regions don’t have their risks also,” he says.
For investors, McGrath argues, the more important question is whether the underlying fundamentals are improving. “There’s a lot of noise out there at the moment,” he says. But economic and earnings growth, corporate profitability and valuations—the three factors he sees as driving equity markets—continue to favour Europe.
Despite the challenges ahead, both experts see reasons for optimism.
“I would remain optimistic about Europe,” says Noble. “I think it’s going to go through some difficult times with this war in Ukraine and the difficulties in France right now. But I would say Europe’s still a good place to put money.”
McGrath agrees.
“I think Europe is still just scratching the surface of its improvements,” he says, “and I think with the foundations that were put in place last year and are starting to take hold this year, we’ll see the growth rates improve, and that will drive more interest in European equities.”
Cindy McGlynn is a Toronto-based writer and editor who frequently writes about business, culture and the arts. In addition to holding communications roles at tech startups and writing for consumer and B2B publications, Cindy has edited two national magazines and served as a long-time columnist for the Toronto Star’s Eye Weekly magazine. She has been contributing to Canadian Family Offices for four years.
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