Growth in European small-cap stocks: will the bullish trend continue?

European small-cap stocks are outperforming this year and are poised to continue their winning streak, according to a senior strategist at Goldman Sachs.

In an interview on Thursday, Sharon Bell stated that the weak dollar and expectations for an improving regional economy are giving a “mild boost to small-cap companies.”

“So, small-cap companies in Europe are performing better this year, which is very different from the U.S.… where mega-cap companies have done very well,” she said.

“Small-cap companies are more local – they are more likely to earn income in euros in Europe, and the euro has performed well. If you’re earning dollars, you’re an international large-cap company. Converting that back into euros, when the euro is so strong, would have been painful for you this year. So that’s one of the reasons small-cap companies are doing well.”

The MSCI Europe Small Cap index, home to stocks from across the region, including British real estate platform Rightmove and Swiss property firm PSP Swiss Property, has gained about 13% since the beginning of the year.
The German SDAX index, composed of 70 small-cap companies, has gained nearly 32% year-to-date.

By comparison, the pan-European Stoxx 600 has risen 7.9% year-to-date, while the U.S. S&P 500 is up around 7%.

Bell also noted that part of the appeal of small-cap stocks right now is that they remain cheap compared to large- and mega-cap companies.

“Large-cap companies are at their highest levels and are extremely stretched in terms of valuation.”
“And of course, when your stock price is a bit lower than those of the large-cap companies, you become big targets. And we are seeing a rise in mergers and acquisitions, which I think will continue to improve over the next year, and eventually all small-cap companies will get higher bids once people’s expectations for mergers and acquisitions start to improve.”

According to data from professional services giant PwC, global mergers and acquisitions volumes declined 9% year-over-year in the first half of 2025, but deal values increased by 15%.

In the EMEA region, volumes and values fell by 6% and 7% respectively compared to the first half of 2024. PwC attributes this largely to a drop in the number of megadeals in the United Kingdom compared to the previous year.

Bell is not the only one seeing opportunities among small European firms.

A Bank of America survey of European fund managers in July found that a net 44% of respondents expect small-cap companies to outperform large-cap ones over the next 12 months.
The regional survey includes responses from fund managers collectively managing $172 billion in assets.

This view marks a huge shift in sentiment toward small-cap stocks. Just a month earlier, only 7% of fund managers told BoA they believed small-cap companies would outperform large-cap ones over the next 12 months.

In their survey results report, BoA strategists stated that there is currently “a clear preference for European cyclicals, value, and small-cap stocks.”

Christopher Hart, a fund manager at Boston Partners, said Friday that while he doesn’t disagree with the case for small-cap companies “from an idiosyncratic standpoint,” it’s important to take a thoughtful approach to investing in that space.

Hart, who manages the Boston Partners Global Equity Fund worth $274 million, did note, however, that there is a “golden middle” among small-cap companies, with some offering both value and a strong growth trajectory.
He urged investors not to treat small-cap companies as one and the same.