Skip to Content (press ENTER)
My Account
North America
Canada
Investor Type
United States
Latin America
Argentina
Brazil
Chile
Colombia
Mexico
Panama
Uruguay
Asia Pacific
Australia
China (中国大陆)
Investor Type
Hong Kong (香港 – 中文)
Investor Type
Hong Kong - English
Investor Type
Japan (日本)
Investor Type
Korea
Investor Type
Singapore
Investor Type
Taiwan (台灣)
Investor Type
Europe
Austria
Belgium
Denmark
Finland
France
Germany
Ireland
Italy
 
Luxembourg
Netherlands
Norway
Portugal
Spain
Sweden
Investor Type
Public Equities

European Small Caps: Three Catalysts for Change

February 2025 – 6 min read

From changing interest rate expectations to potential political resolutions, there are reasons to believe that European smaller companies may be at a turning point.

European equities have begun 2025 on a strong footing, outpacing both U.S. and broader developed markets this year (Figure 1). While this outperformance in part reflects both the recent decline in U.S. technology companies and a partial clawback of European equity indices’ relative underperformance since 2022, immediate concerns over trade tariffs have diminished.

Figure 1: European Equities Outperform Broader Markets YTD (US$)

european-small-caps-chart1.jpgSource: Barings, MSCI, Refinitiv. As of January 31, 2025. For illustrative purposes only. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance.

In addition, relative valuations support this outperformance. In particular, even globally active and world-leading European companies are currently trading at substantial discounts to their U.S. counterparts.1 Meanwhile, smaller European companies, which have historically traded at a premium valuation compared to larger European companies, are currently valued on unprecedented discounts across both earnings-based and asset-related measures.2

Looking ahead, we believe there are three key themes that could shape a turning point for smaller companies across Europe.

1. Source: MSCI Europe Next 12 months PE Relative to MSCI U.S.A. As of January 31, 2025.
2. Source: MSCI. As of January 31, 2025.

Want to read the full article?

View PDF
Headshot of Nick Williams smiling at the camera.

Nicholas Williams

Head of Small Cap Equities
Headshot of Rosemary Simmonds smiling at the camera.

Rosie Simmonds, CFA

Investment Manager, Small Cap Equities
Headshot of William Cuss smiling at the camera.

William Cuss, CA, CFA

Director, Small Cap Equities
Headshot of Phillip Nicholass smiling at the camera.

Philip Nicholass, CFA, CAIA

Client Portfolio Manager, Equities

Important Information

The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, investment recommendations, or investment research.

In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.

Unless otherwise mentioned, the views contained in this document are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Parts of this document may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Forecasts in this document reflect Barings’ market views as of the preparation date and may change without notice. Projections are not guarantees of future performance. The value of investments and any income may fluctuate and are not guaranteed by Barings or any other party. Examples, portfolio compositions, and investment results shown are for illustrative purposes only and do not predict future outcomes. Actual investments may differ significantly in size, composition, and risk. No assurance is given that any investment will be profitable or avoid losses. Currency exchange rate fluctuations may impact investment value.

Investments involve risks, including potential loss of principal. Past performance is not indicative of future results. Investors should not only base on this document alone to make investment decision.

This document is issued by Baring Asset Management (Asia) Limited. It has not been reviewed by the Securities and Futures Commission of Hong Kong.

Contact Us to Learn More

 

The form was successfully submitted.

 

Any data collected will be processed according to Barings’ Privacy Notice. You can unsubscribe at any time by clicking the link at the bottom of any promotional message we send, or by contacting us using the contact details set out in the Privacy Notice.