Mirabaud AM: Spain, Ireland and Germany – where opportunities are hiding among European small and mid caps
30 DEC, 2025
By Hywel Franklin
By Hywel Franklin, Head of European Equities at Mirabaud Asset Management
We believe that Europe remains one of the most undervalued and underrepresented regions in global equity portfolios.
That said, in our view we are beginning to see the first signs of renewed investor interest. With valuations still at a significant discount and a recovery spreading across multiple countries and sectors, we believe the outlook for Europe in 2026 is becoming increasingly attractive, particularly within the small- and mid-cap (SMID) segment, where valuations and fundamentals have diverged most sharply from those in the United States.
European small caps are trading at 12x earnings, compared with 14x for European large caps, 18x for U.S. small caps, and 20x for U.S. large caps (MSCI data as of 18 December 2025). Many SMID companies have endured several challenging years – marked by supply-chain disruptions, inflation spikes, tariff-related pressures and currency volatility – but have emerged stronger and more resilient.
We believe that many of these headwinds will begin to fade in 2026. Companies affected by tariffs in 2025 will benefit from more favorable base effects and may start to recover margins as trade flows stabilize, while a weaker dollar should support Europe-based exporters and ease production costs. Since many European companies hedge currency exposure in advance, these benefits are likely to materialize gradually over the year, improving visibility and profitability.
That said, differences within the market remain pronounced. The European recovery continues to be uneven, creating ample room for genuine stock picking. While we do not take a top-down geographic view, we are observing particular strength in certain peripheral countries – notably Spain and Ireland – as well as early signs of recovery in Germany.
Spain’s growth remains solid, supported by business-friendly regional policies, steady inward migration and relatively low energy costs driven by the expansion of renewable energy. Ireland continues to benefit from strong public finances, a young and English-speaking workforce, and significant exposure to technology and healthcare clusters. In Germany, industrial activity is stabilizing, and we are positioned for a cyclical recovery as demand gradually normalizes. These are not top-down calls, but themes emerging from bottom-up analysis.
Exposure to companies operating in countries such as Germany, Spain and Ireland allows investors to benefit from improving domestic economic conditions, while many businesses are also well positioned to gain directly from the normalization of tariffs and currency trends.
In particular, we maintain a constructive view on selected niches within residential construction in Spain and Ireland, where there is a significant supply–demand imbalance, relatively affordable housing, and fast-growing economies with competitive wage levels. We also see numerous segments of the economy where companies are in recovery, a trend that is not yet fully reflected in investor valuations.
It is also often overlooked that exposure to artificial intelligence can be found in Europe, not just in the United States. Some European companies sit further downstream in the value chain, but they are driven by the same structural trends and, in some cases, may grow even faster – a dynamic not yet priced into valuations. In this context, we have identified interesting opportunities in Norway, where there is a strong technology sector focused on data transfer between data centers, a rapidly expanding area.
We also expect M&A activity to continue within the European SMID universe. Valuation gaps between large and small companies remain wide, making many smaller stocks attractively priced and, in some cases, potential acquisition targets. We believe this trend could persist, with strategic buyers and private equity funds seeking growth opportunities at reasonable valuations.
Europe is still struggling to regain investor attention, but we believe this is starting to change. Improving fundamentals, attractive valuations and the breadth of opportunities across European SMIDs combine to create a highly compelling investment backdrop
