Hot European Summer

European fund managers back from a month on the beach found their home market quietly beating the world. The Euro Stoxx 50 has outpaced the S&P 500, and banks have left US tech giants in the dust.

Goldman Sachs calls Europe 'the secret outperformer' and punctures a few old myths:

Who said Europe has no growth?

First-half earnings per share grew 14% year on year, the strongest in three years, with close to 18% expected for the full year. Profitability low? Return on equity has improved markedly, helped by buybacks. Economy stagnant? Over 60% of STOXX Europe revenues come from abroad, and new orders are picking up.

Valuations look reasonable too, at 14.5 times forward earnings, cheap even after adjusting for the lack of high-growth names.

Money is coming, but not from retail

Foreign investors are piling in, with inflows near ten-year highs. But ordinary Europeans are staying away: equities are only about 20% of household wealth (vs nearly 50% in the US), only 7% of German and Italian households own stocks directly, and UK retail turnover is under 5% of the daily total.

Who shut the door on retail?

Blame the incentives: UK stamp duty deters buying, while Sweden's tax-efficient ISK account, launched in 2012, helped push household ownership to 22%. Gambling rules also play a part: Americans get their risk kick from stocks, Brits from sports betting — and Robinhood is now making more from event trades than from equities.

Then there's market access: the US lured retail with commission-free trading, but Europe banned payment for order flow, and Germany's temporary exemption just expired. On September 14 Europe launches its first consolidated tape, giving retail investors real-time price data for free. Whether that truly opens the fragmented market to the small player remains to be seen.

Bottom line: Europe's equity spring has arrived, but retail investors are still queuing outside, waiting for policymakers to hand them a key.