Global equities: Return of diversification
The dynamics of equity markets over the past decade, especially in the post-Covid environment, have been marked by a significant concentration of returns. In international markets, the very notion of outperformance seems now undistinguishable to the overweighting of American markets and, notably, major technology stocks. From another perspective, this polarization has also led to historically-low performances from segments such as small and mid-cap stocks and equal-weighted indices.
However, performance is intrinsically linked to capital flows. Merely observing performance disparities overlooks the highly concentrated positioning of international investors. Moreover, this polarization is amplified by the dominance of passive flows, rooted in market capitalization as the sole investment signal, indifferent to fundamentals and risk. The significant rotations since the beginning of the year highlight the risks associated with the excessive concentration reached and underscore the importance for each investor to actively reassess their diversification needs.
For some time now, we have emphasized the importance of adopting a relative perspective on current markets, as opposed to a purely directional one. Despite high absolute levels, relative valuations between different sectors and regions are historically attractive. As the global economy – and markets – seek rebalancing, those segments that have been overlooked in recent years, such as Europe, Asia, domestic stocks, and less volatile sectors, are re-emerging at the forefront.
Eurozone / Europe equities: Limited immediate valuation upside despite an improving 2026
Eurozone Equity markets have resumed their uptrend in 2025 after more than six months of consolidation. Five years after the end of the Covid crisis, Eurozone equity markets are up 89% including 49% (or + 18% per year) during the last three years. The 12% collapse following “liberation day” stopped rapidly and markets now sits more than 5% above levels prevailing at end march.
Achieved in a context of mediocre economic fundamentals and increased political uncertainty, this 14% upward movement in 2025 came somewhat as a surprise. To us, markets reacted to, the rising probability of an improved backdrop for Europe in 2026 because of lower interest rate, lower oil price, fiscal support in Germany and hopes of public economic support in China but also to a clear inflection in the allocation towards the European equity asset class after years of minimum interest from investors.
The strong uptrend in 2025 in the Eurozone / Europe shows domestic businesses outperform their international counterparts, and masks large divergences in terms of sector, country and theme. For example, banks rose by 42% whereas luxury goods fell 14%, Germany is up by 20% and the Netherlands only by 7%. Finally value stocks rose by 12% vs only 1% for growth stocks. Even within sectors, in the capital goods area, electrical equipment is up 8% and defense 45%.
At Ostrum AM, we acknowledge the possibility of a gradual improvement in 2026 in the Eurozone / Europe. However we are prudent on equities for the summer months. Political and economic uncertainty remain high, profits will probably contract in Europe for the third year in a row and the positive economic momentum in the US should eventually fade. Valuations although attractive versus those prevailing in the US are back at the peak of their 10-year range.
Asian equities: BRIC is broke: time for EM Asia
Asian markets have seen a surge in Tech and Industrial themes including AI, Defense, Shipbuilding and Consumption related thematics since the start of the year. We have further observed that investors are now pivoting to allocations based on the domestic strengths of Asian economies. Beyond media headlines related to geopolitics and tariffs, a deeper dive reveals compelling opportunities.
Asia has an inherent "home advantage" with many countries like Indonesia, Philippines, Thailand, China, India, HK and Malaysia generating 70-90% of their revenues domestically which provides resilience against global headwinds. Sectors like financials, e-commerce and utilities are thriving on domestic demand versus more internationally sensitive sectors like technology.
The region's growth story is robust, fueled by digital transformation, AI adoption, and e-commerce expansion. Asia is a leading consumer market, and millions more will join the consumer class, particularly in Southeast Asia. "China + 1" strategies, friendshoring, and favorable trade agreements such as the ASEAN Free Trade Area (AFTA) are further reshaping the economic landscape. Asia's dominance in critical metals production positions it advantageously in the face of increasing global demand.
At Ostrum AM, our blended stock-picking approach focuses on identifying domestic value creators alongside opportunities in global tech companies. We apply a unique classification system, which considers each company's life cycle stage, allowing us to tailor financial criteria and return expectations accordingly. Active management enables us to navigate market distortions and position to capitalize on the long-term opportunities in Asia.
