Global investors are channelling record capital into European equities as concerns about overvalued American technology stocks drive a historic portfolio rebalancing away from Wall Street and toward cheaper alternatives across the Atlantic.
European stocks are on track for their highest monthly inflows ever in February, following two consecutive record weekly flows of approximately $10 billion each, according to EPFR data tracking ETF and mutual fund movements. The continent’s blue-chip Stoxx Europe 600 index has broken through multiple record highs this month, with indices in the UK, France and Spain similarly reaching new peaks.
Diversification Drive Powers European Rally
The capital rotation reflects institutional investors’ growing discomfort with Wall Street’s concentration in massive technology companies and mounting concerns about an artificial intelligence valuation bubble. “It’s a lot of global investors wanting to diversify away from an expensive US market,” said Sharon Bell, senior equities strategist at Goldman Sachs, to The Financial Times, noting the trend is particularly pronounced among US-based investors seeking international exposure. “Europe as an equity market offers a different exposure—there’s less tech.”
The shift in market leadership away from AI giants has disproportionately benefited European markets with their heavy weighting toward “old economy” sectors, including banks, industrials and natural resources. The UK’s FTSE 100 has surged nearly 7% this year, propelled by booming demand for physical assets that has lifted stocks like Weir Group and Antofagasta more than 20%.
Much of the capital has flowed into funds offering broad non-US market exposure rather than Europe-specific products, reflecting widespread concern that global portfolios have become dangerously dominated by expensive AI-linked equities. This diversification wave has powered numerous global markets ahead of Wall Street in 2026, with the S&P 500 ranking 76th out of 92 major benchmarks tracked by Bloomberg year-to-date.
Valuation Gap Widens Between US and Europe
The valuation disparity between American and European equities has become stark. The Stoxx Europe 600 trades at a price-to-earnings ratio of 18.3 compared with 27.7 for the S&P 500, according to LSEG data, offering investors nearly 50% more earnings per dollar invested in European stocks.
“Diversifying your currency, diversifying your sector and diversifying your country has become the hottest topic,” Bell said. “People are effectively scanning the world and saying—which are the cheapest pockets? Where are the opportunities?”
Europe-focused funds have attracted steady inflows over the past 12 months following years of persistent outflows, aided by improving economic sentiment. Germany, the region’s industrial powerhouse, returned to growth last year for the first time since 2022. A recent surge in German factory orders has further buoyed markets as investors recognise that the historic defence spending increase announced last March is beginning to flow through to industrial production, prompting Bank of America analysts to upgrade German equities to overweight.
Does Geographic Diversification Still Matter in a Digital World?
The stampede into European equities based on valuation and diversification logic seems rational on the surface—pay 18x earnings instead of 28x, reduce concentration in a handful of tech stocks, and gain exposure to defence spending and commodity demand. But this traditional portfolio management thinking may miss how interconnected modern markets have become.
European companies remain deeply exposed to global growth, particularly China, and the “cheap” valuations partly reflect structural challenges like demographic decline and energy dependence that won’t disappear with a few quarters of improved data. The real question is whether buying “old economy” European industrials represents genuine diversification or just a rotation into different risks that could correlate surprisingly strongly when genuine stress hits.
For crypto investors, this capital rotation away from US tech is noteworthy because Bitcoin and digital assets typically trade as high-beta tech proxies, suggesting the same diversification impulse driving money into European equities could pressure crypto valuations in the near term despite their philosophical case as non-correlated alternatives.
