AI Summary
5 min read🎙️ The Voices & The Context
- The Format: A structured casual chat between Morgan Stanley colleagues, blending market analysis, data-driven insights, and forward-looking debates in a short podcast episode.
- The Key Players:
- Paul Walsh: Host and Morgan Stanley's head of research product in Europe; facilitates discussion and adds sector expertise (e.g., semis).
- Marina Zavelak: Co-host and Chief European Equity Strategist; the expert voice driving the analysis with models, forecasts, and client feedback.
- The Vibe: Educational and professionally optimistic—crisp, data-heavy, with a sense of excitement about European equities' potential amid US dominance.
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What you'll learn
- 1 (00:00) **🎙️ Introduction: Marina Zavelak**
- 2 (00:31) **European Equities vs. US: Recent Outperformance**
- 3 (02:46) **Sustainability of Flows and Performance**
- 4 (04:45) **Bull Case Themes for Europe**
- 5 (06:56) **Base Case: Stock Picking and Key Sectors to Buy**
- 6 (08:46) **Semiconductor Investment Case**
- 7 (10:10) **Sectors to Avoid**
+ Full timestamped outline available in the app
Show Notes
Our Head of Research Product in Europe Paul Walsh and Chief European Equity Strategist Marina Zavolock break down the main themes for European stocks this year.
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----- Transcript -----
Paul Walsh: Welcome to Thoughts on the Market. I'm Paul Walsh, Morgan Stanley's Head of Research Product here in Europe.
Marina Zavolock: And I'm Marina Zavolock, Chief European Equity Strategist.
Paul Walsh: Today, we are here to talk about the big debates for European equities moving into 2026.
It's Friday, January the 16th at 8am in London.
Marina, it's great to have you on Thoughts on the Market. I think we've got a fascinating year ahead of us, and there are plenty of big debates to be exploring here in Europe. But let's kick it off with the, sort of, obvious comparison to the U.S.
How are you thinking about European equities versus the U.S. right now? When we cast our eyes back to last year, we had this surprising outperformance. Could that repeat?
Marina Zavolock: Yeah, the biggest debate of all Paul, that's what you start with. So, actually it's not just last year. If you look since U.S. elections, I think it would surprise most people to know that if you compare in constant currency terms; so if you look in dollar terms or if you look in Euro terms, European equities have outperformed U.S. equities since US elections. I don't think that's something that a lot of people really think about as a fact.
And something very interesting has happened at the start of this year. And let me set the scene before I tell you what that is.
In the last 10 years, European equities have been in this constantly widening discount range versus the U.S. on valuation. So next one's P/E there's been, you know, we have tactical rallies from time to time; but in the last 10 years, they've always been tactical. But we're in this downward structural range where their discount just keeps going wider and wider and wider. And what's happened on December 31st is that for the first time in 10 years, European equities have broken the top of that discount range now consistently since December 31st. I've lost count of how many trading days that is. So about two weeks, we've broken the top of that discount range. And when you look at long-term history, that's happened a number of times before. And every time that happens, you start to go into an upward range.
So, the discount is narrowing and narrowing; not in a straight line, in a range. But the discount narrows over time. The last couple of times that's happened, in the last 20 years, over time you narrow all the way to single digit discount rather than what we have right now in like-for-like terms of 23 percent.
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