From momentum to selection
The first half was characterised by concentration. The second could well be defined by selection.
Driven by artificial intelligence, abundant liquidity and a remarkable ability to absorb geopolitical risks, markets have continued their upward trajectory despite a particularly uncertain environment. Yet beneath indices trading close to all-time highs, the underlying dynamics are shifting. The era of easy beta and consensus plays may gradually give way to a more demanding phase, in which earnings growth, valuations, shareholder returns and the strength of fundamentals once again become the true drivers of performance. For investors, the challenge will be to maintain exposure to the most powerful growth themes while avoiding the excessive concentration that accompanies periods of market exuberance. More than ever, the key will be to distinguish sustainable momentum from simple market enthusiasm.
If the recent easing of geopolitical tensions proves lasting, lower energy prices and a reduced risk of stagflation could pave the way for a broader stock market rally. Europe, long held back by its growth shortfall and technology gap, could then offer significant catch-up potential.
Europe: a reallocation opportunity not to be overlooked
In a market that is becoming less reliant on a handful of stocks and increasingly driven by fundamentals, the focus may gradually shift from broad thematic exposure to careful stock selection. After months of pronounced underperformance, and with investors still underweighting the region, exposure to European equities remains close to all-time lows. Valuations have normalised, excesses have largely been purged and, as the macroeconomic backdrop becomes more stable, new opportunities are emerging.
This is particularly true of small caps, whose accumulated underperformance could begin to reverse over the coming months. But it also applies to high-quality businesses, whose fundamentals remain resilient despite recent uncertainty. These companies are once again becoming attractive, with relative valuations having largely normalised after two challenging years. The appreciation of the US dollar against the euro could also provide support for these highly export-oriented stocks.
Certain luxury stocks are already benefiting from early signs of a recovery in demand. The appointment of new creative teams at several leading houses is also helping to restore brand desirability and renew investor interest.
Eurozone banks continue to benefit from a persistently supportive interest rate environment, strong balance sheets and high levels of profitability. This is complemented by the productivity gains expected from artificial intelligence, ongoing optimisation of branch networks, the early stages of sector consolidation and particularly attractive shareholder returns.
Longer-duration assets are also becoming more attractive, particularly in Europe, where lower energy prices could help moderate inflation expectations and provide central banks with greater room for manoeuvre.
Beyond Europe, several themes offer additional sources of diversification. Continued investment in artificial intelligence infrastructure is fuelling substantial capital expenditure requirements, while critical materials occupy a strategic position at the heart of technological, energy and industrial transitions.
Japanese equities also warrant close attention. With the effects of the Bank of Japan’s monetary tightening now appearing to be largely reflected in market prices, company fundamentals remain robust and ongoing corporate governance reforms continue to underpin the Japanese market’s upside potential. Supported by a recovery in investment, more efficient capital allocation, governance reforms and growing interest from both domestic and international investors – and with the yen remaining at historically low levels – Japan is gradually re-establishing its place within global asset allocations.
Against this backdrop, conviction-based management appears more relevant than ever. As performance dispersion increases and opportunities become more diverse, selectivity is once again becoming a key driver of value creation. More than ever, the challenge lies in identifying companies capable of combining visibility, quality, financial discipline and sustainable growth. In a market that is no longer driven by a handful of dominant stocks, outperformance will depend less on the indices themselves than on the ability to select the right companies.
Dated 3 July 2026