New Delhi, Aug. 29 -- European equities may need a stronger improvement in corporate profitability, potentially driven by artificial intelligence (AI)-led productivity gains, to sustain their recent outperformance as their valuation advantage over global peers has narrowed sharply, according to Morgan Stanley Wealth Management.

The report said European stocks have outperformed global equities since the global manufacturing recovery began in November 2025, but the region's valuation discount has narrowed considerably, increasing the importance of earnings and productivity gains going forward.

Since November 2025, the MSCI Europe Index has outperformed the MSCI ACWI Index by 2.2 percentage points and the MSCI USA Index by 4.8 percentage p...