Europe funds review – which stock markets have done the best so far in 2024?

2024 has given investors a lot to think about.

Interest rates haven’t fallen as much as expected, while inflation hasn’t fallen to the levels that some would like. Geopolitical tensions have also intensified.

Europe has faced other struggles this year, with elections and weaker economic data creating further uncertainty.

This article isn’t personal advice. If you're not sure if an investment is right for you, ask for financial advice. All investments and any income from them can rise and fall in value, so you could get back less than you invest. Past performance isn’t a guide to the future.

French government collapses

In our last European sector review we looked at the political uncertainty in France following the snap election called by President Emmanuel Macron. No party gained a clear majority and, while Michel Barnier was later appointed prime minster, his minority government has already collapsed after Barnier forced through a budget without a vote in parliament.

The budget included tax rises and spending cuts, but this received backlash from opposition parties, including both the far-right National Rally and far-left French Unbowed party.

As a result, the French parliament voted Barnier out after a motion of no confidence was approved. President Emmanual Macron has since chosen Francois Bayrou, a fellow centrist and ally of Macron, as prime minister. This comes just three months into Barnier’s term – the shortest of any premier since France’s Fifth Republic was founded in 1958.

The next prime minister will still face the difficult tightrope of dealing with a ballooning budget deficit while potentially seeking a deal with another party, such as the National Rally, to remain in power and get a much-needed budget approved.

Either way, France’s political and economic backdrop remains shrouded in uncertainty.

What impact could Trump 2.0 have on Europe?

Elsewhere, Europe more broadly is facing the reality of what a second term in power for Donald Trump means for the continent.

Europe is vulnerable to various potential policies from the Trump administration, particularly when it comes to trade. To put things into perspective, the US accounted for a fifth of the EU’s exports in 2024. Germany, Italy and Ireland are the countries with the highest exports to the US.

Trump has proposed a blanket 20% tariff on imports from the EU. This could increase costs for some businesses and could even see some European manufacturers move production to the US in an attempt to avoid tariffs.

Trump has also campaigned to end Russia’s invasion of Ukraine and pullback on military aid. Ukraine relies heavily on the US military, and any withdrawal of this support could increase pressure on Europe to provide aid. Finding more cash to fund this is possible, but not necessarily easy or palatable.

NATO allies are also under pressure to spend more on defence. This would place greater responsibility on Europe’s shoulders and significantly increase how much it needs to spend on security and defence.

How have European stock markets performed?

European stock markets have delivered mixed performance over the past year (in sterling terms, to the end of November 2024).

Over this time, the broader European stock market, as measured by the MSCI Europe ex UK index, has grown 8.25%*. The broader global market, the MSCI AC World index, has done much better, growing 26.17% over the same time.

The global stock market has benefited from the large amount invested in the US, in particular large tech companies, which have performed well over the past year.

Stock market growth from Europe is still reasonable for a one-year period though, and don’t forget that different markets and sectors will come in and out of favour.

Looking at countries individually, the top two European markets were the German and Italian markets, up 16.64% and 15.47%, respectively.

In Germany, its main market, the DAX 40, recently hit a record high despite some weak economic data and recessionary risks remaining.

The technology, financials and industrials sectors have boosted performance. Tech companies have been helped by the artificial intelligence (AI) boom, with SAP, one of Germany’s leading tech companies, performing strongly this year.

France was the only market to lose money over the year, falling 0.70%. It struggled during the second half of the year due to the political uncertainty and concerns over its high debt levels.

The market could remain volatile while the uncertainties persist, though there’s also the potential for improvement if things do settle.

European smaller companies didn’t perform as well as larger companies over the year, but the MSCI Europe ex UK Small Cap Index still made 6.39%.

Investor sentiment, the outlook for economic growth, and higher interest rates can all have a greater impact on smaller companies that have less certain futures compared to bigger ones.

The average fund in the IA European Smaller Companies peer group performed slightly better than the index, returning 7.05% over the same time.

How have European Wealth Shortlist funds performed?

All European Wealth Shortlist funds have delivered a positive return over the past year, though the level of performance has been mixed.

We usually expect this. A range of managers with different strengths, styles and areas of focus will perform differently in different economic conditions.

Remember, investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio. For more information on the funds risks and charges please see the key investor information and online fund factsheets.