The month of May saw European equity markets again make gains, as investors remained sanguine about the conflict in the Middle East and implicitly hopeful of a near term resolution.
There was a certain narrowness to the market, however, with ‘AI winners’ (or the suppliers to those AI winners) performing well, while Utilities were among the laggards, perhaps in relation to rising sovereign bond yields and higher starting valuations from a strong run over the past year.
Valuation levels within global equity markets have attracted growing attention in recent months. With that in mind, it is worth reminding ourselves that European equities trade in a quite different place to other equity markets (especially the US) – with the European market index trading far closer to long term average multiples than its US and Global counterparts.
US market valuation is significantly above Europe in absolute and historical terms
Cyclically-adjusted Price-to Earnings ratio
Valuations, however, tell only one aspect of the story - another key topic is market concentration. We have been pointing out for some time how concentrated the US equity market is into the top 10 stocks and the technology sector, and - possibly more importantly - how the MSCI World Index is in some respects little more than an ‘S&P lite’.
US market concentration is increasingly uncomfortable
Market concentration of top 10 constituents as % of market cap
Yet, this tech prominence is even more extreme in Asian markets and the MSCI Emerging Markets, which increasingly look like ‘tech hardware’ indices to us.
Tech dominates key markets – but Europe is different
Sector composition: IT & Interactive Media & Services vs Other
Top 5 index constituents for key market indices. Bold names are Information Technology and Interactive Media & Services companies.
| MSCI North America | MSCI World | MSCI Emerging Markets | MSCI Asia ex. Japan | MSCI Europe |
| NVIDIA (7.4%) | NVIDIA (5.6%) | TSMC (14.5%) | TSMC (16.1%) | ASML (4.4%) |
| Apple (6.7%) | Apple (5.0%) | Samsung Electronics (7.8%) | Samsung Electronics (8.7%) | HSBC (2.3%) |
| Microsoft (4.6%) | Microsoft (3.5%) | SK hynix (6.6%) | SK hynix (7.4%) | Roche (2.1%) |
| Amazon (3.8%) | Amazon (2.9%) | Tencent (2.7%) | Tencent (3.0%) | AstraZeneca (2.0%) |
| Alphabet (3.2%) | Alphabet (2.0%) | Alibaba (2.1%) | Alibaba (2.3%) | Novartis (2.0%) |
| Top 5 Total: 25.7% | Top 5 Total: 19.5% | Top 5 Total: 33.7% | Top 5 Total: 37.5% | Top 5 Total: 12.8% |
Source: Bloomberg, as at 31.05.2026. Company examples are for illustrative purposes only and are not a recommendation to buy or sell.
The key takeaway from all of this is that investors should be aware of what they are buying. The lack of diversification – and especially the high concentration in Tech businesses – within the S&P 500, MSCI World and MSCI Emerging Market indices has implications for the balance of an overall portfolio.
In this context, it is worth considering the role that European equities can play as an alpha generator first and foremost, but importantly also as a diversifier. We aren’t trying to shy away from opportunities for companies with leading products and services exposed to the electrification and digitalisation trends – but we believe that Europe offers some differentiated industrials businesses in this space, as well as semiconductor capital equipment-related technologies.
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