Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

European stocks are on course to outpace other major global equity markets this month, as fears of sweeping US tariffs subside and investors flee the shakeout in Wall Street technology stocks.

The Stoxx Europe 600 index has risen more than 6 per cent so far in January, its best monthly performance since November 2023. The US’s S&P 500 index has gained 3.2 per cent, while Japan’s Topix is up 0.1 per cent.

London’s FTSE 100 index rose to a fresh record high on Friday and is up 6.3 per cent so far this month, its best monthly performance since November 2022, when markets rebounded following then prime minister Liz Truss’s ill-fated “mini” Budget two months earlier.

The gains have sparked renewed hopes of a sustained revival in the region’s equity markets. While some have at times performed strongly — Germany’s Dax rose by nearly one-fifth last year — as a whole Europe has lagged well behind the US over the past decade.

“After so many years of underperformance, not much needs to happen before everyone becomes excited . . . Everyone is getting warm about Europe,” said Roland Kaloyan, a strategist at Société Générale.

Investors piled into US stocks last year amid excitement about the growth of artificial intelligence, with a small group of tech stocks once again driving gains.

At the same time, US President Donald Trump’s tariffs threats weighed on Europe, which sends roughly one-fifth of its exports each year to the US, while homegrown political crises in countries such as France diminished investors’ appetite for bonds and equities alike.

But January saw the biggest rotation from US stocks into Eurozone stocks in almost a decade, according to Bank of America, as investors fled richly valued tech stocks in favour of European defensive and growth stocks, including banks, pharmaceuticals and luxury retailers.

This week’s global tech sell-off sparked by Chinese start-up DeepSeek’s advances in artificial intelligence has only accelerated this shift, analysts said.

After the tech wobbles, “investors have been moving towards . . . Europe”, as the region has lesser exposure to technology stocks, said Mohit Kumar, an economist at Jefferies.

The UK market, meanwhile, has benefited from low valuations, say analysts.

“I have been quite surprised by the increased interest in UK equities, it is probably because the growth expectations are pretty high compared to the rest of Europe,” said Sharon Bell, equity analyst at Goldman Sachs.

“And obviously it is cheap. It could also be seen as a hedge against tech . . . for diversification.”