by Cristina Matti, Head of European Small & Mid Cap Equities at Amundi

European small caps are confirming their rebound in 2026. This momentum is encouraging investors to take an interest in the sector.

Matti Christina

After 5 years of underperformance, small caps outperformed large caps in 2025. And the momentum has continued since the beginning of the year. All signs now seem to be pointing in the right direction.

Global equity markets nudged to all-time highs as risk on appetite continued to propel markets. Regionally, Emerging Markets outperformed Developed markets helped by a weaker USD and reflation tailwinds. Within Developed Markets, US equities underperformed as government policy uncertainty and some AI fatigue held the region back. Europe and Japan outperformed helped by good performance of some of the more cyclical areas.

Geo-political tensions remained elevated in January with concerns that the West could launch potential military strikes against Iran. This news flow caused some upward pressure on oil prices and helped to push the reflation narrative. Outside of that, from a more fundamental perspective, January marks the early days of the Q4 earnings season. In the US, initial signs are for a more sluggish earnings delivery when compared to recent quarters. In Europe, despite lower earnings growth in absolute terms, first signs are positive with more beats than misses. While early in the reporting season, investors will be closely watching the impact that the stronger euro will have on aggregated EPS growth on both sides of the Atlantic. We continue to believe that earnings delivery will be paramount to drive upside from here given the fuller valuations in global equity markets.

Looking ahead, we remain optimistic as corporate fundamentals in aggregate remain solid, central banks maintain a supportive stance, and the wider economic situation appears robust. We will seek to use bouts of short-term rotation and volatility to execute on our investment processes.