Investor sentiment in the euro-zone has shown signs of recovery in May, spurred by a rebound in the Sentix Investor Confidence Index and other key gauges, following a sharp decline induced by US-imposed tariffs on European goods earlier this year.
While trade tensions had dampened optimism across global markets, recent data suggests European equities are regaining their footing, offering actionable opportunities for investors seeking to rotate between UK and broader European markets.
Rebound in Euro-zone Confidence Gauges
The Sentix Investor Confidence Index, a critical barometer for economic sentiment within the euro-zone, rose to 7.2 in May, significantly higher than April’s 3.4.
This marks the second consecutive month of upward movement after hitting a multi-year low earlier in Q1 2025, driven by stabilising indicators in Germany and France and eased trade concerns following EU-US talks.
The sub-indices also improved: the current situation gauge climbed to 10.8 from 6.9, and the expectations gauge rose 3.9 points to 5.2.
Meanwhile, the European Commission’s Economic Sentiment Indicator (ESI) added 1.2 points in April, confirming a broader uplift in investor morale despite recent sector volatility.
Sector‐specific Drivers in European Equities
Technology and clean‐energy stocks have attracted inflows under the EU’s €1 trillion “Green Deal” programme, while automakers rebound on renewed EV demand and funding for charging infrastructure.
Luxury goods firms in France and Italy posted double-digit sales growth as Asian travel resumes, and healthcare names continued to benefit from defensive flows.
Over 70 percent of STOXX 600 companies beat Q1 earnings estimates, signalling resilience even where margins remain under pressure in cyclical sectors.
Rotation Opportunities Between UK and European Markets
UK equities have outperformed on commodity strength and financials, but rising euro-zone confidence opens tactical rotation opportunities for growth-oriented investors.
Euro-zone technology stocks (Germany, Belgium, Netherlands) offer higher growth potential than the tech-light FTSE 100, while UK utilities and telecoms remain attractive defensive yield plays.
Currency moves add a further tailwind, as the euro has strengthened versus sterling since early 2025, enhancing returns for sterling-based investors in euro-zone names.
Tactical Rotation Suggestions
From UK Financials to Euro-zone Technology
Banking stocks in the UK rallied on net-interest-margin gains, but with a rate pause looming, consider rotating into EU tech names benefiting from digitisation funding and innovation policies.
From UK Consumer Staples to Euro-zone Clean Energy
UK staples valuations are elevated; reallocating into euro-zone clean-energy stocks taps EU Green Deal investments and growing renewables demand.
Final Thoughts
The euro-zone sentiment recovery, stronger earnings, and policy initiatives set the stage for improved returns. Tactical UK-Europe rotations can capture growth while hedging risk.
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