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STOXX 600 down 0.7% this month, outperforming 3% S&P 500

fall

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European equity funds see first weekly inflow since

October

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Low valuations, Trump uncertainties aid European stocks

By Naomi Rovnick

LONDON, Jan 8 (Reuters) - Beaten-down European stocks

are luring investors back after a record underperformance versus

Wall Street in 2024, as fears about U.S. economic shocks under

incoming President Donald Trump boost the appeal of

international markets.

Amundi, Europe's largest investor, said on Wednesday it had

"turned constructive on Europe" because the effect of trade war

fears on valuations was exaggerated.

Funds that invest in European equities have also just

recorded their first weekly net inflow since October, Lipper

data showed, after several big banks this week tipped the market

for a 2025 turnaround.

The STOXX 600 index of blue-chip European shares

has lost 0.7% this month but outperformed the U.S. S&P 500

, which has dropped nearly 3% on fading hopes for U.S.

interest rate cuts and policy uncertainty.

Barclays ( JJCTF ) on Wednesday said the European market's

"risk-reward" profile was improving, citing "emerging anxiety

around Trumponomics".

Deutsche Bank and Citi this week forecast double-digit

returns for the STOXX this year, while Goldman Sachs ( GS ) said the

market's lowly-valued companies were likely takeover targets.

The STOXX 600 ended 2024 at its biggest discount to the S&P

on record, LSEG data showed, as investors flocked to so-called

"Trump trades" that bet his policies will lift most U.S. assets.

"There's room to take the other side of that trade and one

of the main beneficiaries will be international markets," Baird

strategist Ross Mayfield said, arguing policy shocks would

weaken the dollar and boost U.S. investors' interest in

euro-denominated assets.

Investors are growing increasingly concerned about tariffs

refueling U.S. inflation and prompting the Federal Reserve to

hike rates, Bank of America said following its most recent

survey of global fund managers.

Conflicting reports about Trump's tariff plans drove the

U.S. currency sharply lower on Monday and left investors braced

for more U.S. market swings.

"I've moved from really disliking international markets to

saying I think there is a diversification benefit," Raymond

James Investment Management chief market strategist Matt Orton

said.

Cheaply-valued European banks, he said, were now "very

attractive", while he also favoured the region's aerospace and

defence stocks.

The revival in interest in European stocks follows months of

gloom as French and German politics plunged into chaos and

tariff threats pressure euro zone exporters.

The euro zone economy remains weak, but after four European

Central Bank rate cuts last year a long-term decline in euro

zone business activity has eased.

"We should have (had) the trough in the euro zone," Edmond

de Rothschild Asset Management portfolio manager Marie de

Leyssac said.

A European market rebound in 2025 was likely given last

year's "extreme underperformance", she added.

Janus Henderson ( JHG ) multi-asset fund manager Oliver Blackbourn

said he was not yet buying into European stocks, but had also

become nervous about heady Wall Street valuations.

"If we do see more improvements in European economic data

then we'd get more positive pretty quickly," he said