European and UK Equity Capital Markets Review December 2025

• December saw UK and European equities outperform the US, following a more tentative November as growing concerns over stretched technology valuations weighed on sentiment. UK markets posted solid gains: the FTSE 100 rose 2.2%, the FTSE 250 1.4%, FTSE Small Cap 2.1% and FTSE AIM 1.3%, leaving the FTSE All Share up 2.1%. In Europe, the Stoxx 600 gained 2.7%. By contrast, US markets were broadly flat to lower, with the S&P 500 down 0.1%, its equal-weighted version up 0.2%, and the Nasdaq down 0.5%. Market volatility continued to ease, the VIX falling 8.6% over the month to close 2025 at a benign 15.0.
  
  
• Despite episodes of volatility around Liberation Day, the longest US government shutdown on record, and persistent AI valuation concerns, equity markets delivered strong returns in 2025. The S&P500 has finished up 16.4% (8.4%)* for the year, whilst its equal weighted counterpart finished up just 9.3% (1.8%)*, and the technology weighted Nasdaq finished up 20.4% (12.1%)*, whilst the smaller cap weighted Russell 2000 closed up 11.3% (3.6%)*. UK equities also performed strongly, particularly the blue-chip index: the FTSE 100 finished up 21.5%, the FTSE 250 up 9.0%, the FTSE Small Cap up 10.1% and the FTSE AIM up 5.5% - as such the FTSE All Share closed up 19.8%. Elsewhere, the Stoxx 600 closed up 16.7% (21.9%)*, and the Nikkei closed up 26.2% (17.8%)*.
  
  
• The UK has started 2026 positively, with the FTSE 100 breaching the 10,000 point mark for the first time in its history. Gains were driven by familiar global themes, including rising precious metals prices supporting miners and heightened geopolitical uncertainty boosting defence stocks such as Rolls-Royce and BAE Systems. Banks have also contributed positively, continuing 2025’s outperformance which saw an average return of 60% for the sector.
  
  
• Sell side forecasts for US equity performance are firmly positive, with all major brokers forecasting positive returns of at least high single digits. However, geopolitical uncertainty again clouds the outlook following intervention in Venezuela, renewed warnings directed at Cuba, Colombia, and Mexico amidst domestic unrest, as well as a reiteration of ambitions regarding Greenland. A potential defeat of Trump’s tariff measures by the Supreme Court early in Q1 could create further volatility, whilst supporting the outlook for US Industrials.
  
  
• December’s macro focus was on policy decisions from the BoE, ECB and Fed. The ECB held rates at 2%, stating that policy remains appropriate for current conditions. In the UK, following a narrow decision to hold rates in November, the BoE cut rates by 25bp in December, as widely expected. With inflation risks gradually moderating and policy approaching neutral, our economists expect rates to fall to 3.25% by end-2026. In the US, the Fed also delivered a 25bp cut, noting that rates are now at the upper end of neutral and that it is well positioned to pause and assess economic developments. After a pause though our economists expect an end-2026 Fed funds target range of 2.75%-3.00%.
  
  
• European ECM activity finished 2025 strongly, with $8.2bn issued in December and $142.8bn for the year (up 21% on 2024). Issuance was dominated by jumbo sell downs in stocks such as Galderma, and significant primary capital raises in the Energy and Utilities sector as electrification remained a major theme. UK ECM issuance totalled $1.3bn in December and $23.6bn for the year; excluding National Grid’s $9.2bn rights issue in 2024, this represents continued momentum (up 3% on 2024). While the UK IPO market has lagged parts of Europe, 2025 showed signs of recovery, with issuance exceeding the combined total of the previous three years.**.
  
  
• Following another strong year for equity markets and increasing secondary ECM activity, the UK and Europe are well positioned for continued recovery in IPO and overall ECM issuance. Although 2025 IPO volumes remained below the 10-year average, we expect continued recovery through 2026, supported by improving sentiment, a growing IPO pipeline and the significant regulatory enhancements made in the UK to facilitate retail inclusion, reducing friction in large secondary capital raises, widening the criteria for fast-track index inclusion and, the welcome Stamp Duty holiday for IPOs.

Source: FactSet; (1) Dealogic – analysis only includes transactions greater or equal to $US50m; European ECM activity inclusive of UK
*Bracketed values show percentage change in GBP
**Including Rosebank

• Equity markets have seen a strong performance over the course of the year, despite tariff induced volatility post Liberation Day causing some of the largest daily swings in equity markets since the GFC and Covid. Despite Liberation Day volatility, the longest government shutdown on record and fears of an AI bubble, US markets finished well with the S&P500 closing up 16.4% for the year, whilst its equal weighted counterpart finished up just 9.3%. Despite fears of an AI bubble, Big Tech has rallied this year with the Nasdaq closing up 20.4%. Smaller cap US stocks (Russell 2000) finished up 11.3% after a slow start to the year.
• UK and European markets outperformed their US counterparts (ex-Big Tech), with the FTSE All Share closing up 19.8% and the Stoxx6000 up 16.7%. For domestic indices, the FTSE 100 closed up 21.5%, the FTSE 250 +9.0%, the FTSE Small Cap +10.1% and the FTSE AIM +5.5%.
• Despite concerns ahead of the UK Budget, an improving rate outlook, a better than expected Budget and exposure to the mining sector have helped UK shares rally well over the course of 2025.
• In the UK for December, the more internationally exposed FTSE 100 outperformed its more domestically focused counterparts finishing the month up 2.2%. The FTSE 250 was up 1.4%, the FTSE AIM100 up 1.3% and FTSE Small Cap up 2.1%. Elsewhere in December, the Stoxx600 was up 2.7%, S&P 500 down -0.1%, Nasdaq down -0.5% and Russell 2000 down -0.7%.
   

• Having trailed their European peers for much of the year, the subsequent recovery for US stocks has seen US equity valuations rise, driven by a strong performance of Big Tech, widening the gap with Europe. The headline valuation differential between US and UK / EU equity markets remains significant, however after adjusting for growth (and sector skew therefore...) that differential significantly reduces.
• Whilst UK equity market valuations do trail those in the US, adjusting for growth it is arguably fewer higher growth opportunities rather than an inability to value growth that drives the differential.
• A large part of the valuation differential across geographies can be attributed to large cap Tech valuations. As can be seen in the latest BAML fund manager survey concerns about AI driven Tech valuations remain the top ‘tail risk’ for investors, but investors are hesitant to reduce their exposure too far for “fear of missing out” (FOMO).
• The solid performance of the FTSE over 2025 has started to close the valuation gap to US markets, but there is still a long way to go particularly for the FTSE 250. Despite this improvement, as at the end of October, the FTSE All-Share still sits at a 40.5% discount to the S&P, and a 21.3% discount on an equal weighted basis (at a headline level) – this compares with January 2025 where the valuation discount was 46% and 30% respectively.
   

• In a positive surprise for markets, UK November CPI inflation fell to 3.2% y/y in November from 3.6%, and lower than consensus calls for 3.5%. Service sector inflation decreased to 4.4% from 4.5%. Core dipped to 3.2% from 3.4%, in line with consensus.
• Eurozone inflation ticked down to 2.1% in November from 2.2%, whilst core held steady at 2.4%. Due to the government shut down, the US CPI report for October was cancelled, with the November reading surprising to the downside coming in at 2.7%, down from 3.0% in September, and below consensus for 3.1% y/y.
• At its latest meeting, the ECB maintained the Deposit rate at 2% noting that it felt monetary policy was well suited to the current economic environment. In the UK, December’s MPC meeting saw rates cut by 25bps to 3.75%, as widely expected. Having held rates at the November meeting with the vote split 5-4, the Governor represented the swing vote in December. Given lingering concerns regarding inflation, and commentary that policy rates are closer to ‘neutral’, our Economists expect a rate of 3.25% at the end of 2026.
• The Fed also cut rates at its December meeting by 25bps to 3.50-3.75%. The Fed now judges the Fed funds target range to be at the upper end of estimates of the neutral rate and as such the Fed is now "well positioned" to wait and see how the economy evolves.

Gloomier narratives abound, but UK GDP has in fact outperformed consensus expectations in 2025. We see scope for this to be repeated in 2026. Rate cuts, increased investment in energy and water infrastructure, the housebuilding drive and AI deployment all look supportive of output. Fiscal policy, meanwhile, will be a restraint, but to a similar degree as in 2025: the Budget’s extra tightening relative to previous plans will take effect only from 2028. With lower net immigration, we forecast 1.3% GDP growth for next year, similar to the 1.4% rate for 2025. Whereas inflation will, on our projections, still exceed the 2% target, it should fall further towards it. This ought to leave scope for more rate cuts, even if not quite to the 3.00% rate we see as ‘neutral’. GBP looks set to tread the middle ground between USD and EUR next year.

^{Note: Shaded areas denote Investec forecasts
Sources: Macrobond, Investec forecasts}

• After a turbulent year, investor sentiment has improved with confidence heading into 2026 the highest it has been since July 2021 (BofA December FM survey). This optimism has led investors to be the most exposed to equities and commodities since February 2022. This sentiment has been aided by strong global growth expectations and bullish profit expectations.
• Whilst AI valuations and default risks in the private credit ecosystem remain a concern, investor caution eased in December.
• A net 81% of participants in the latest BAML investor survey expect near-term gains for European equities and a net 92% project upside over the coming twelve months – both a record high – with a large plurality of investors expecting further gains to be driven by earnings upgrades. A net 32% see European equities as undervalued, close to a five-year high.
• The UK Budget, 26 November, had introduced a couple of months of uncertainty to the UK market, but has been taken positively in the weeks since.

IPO issuance in Europe

• US$990m raised from 16 IPOs in December 2025 across Europe, with an average deal size of US$62m. There were 3 IPOs greater than US$50m including UK SPAC Mayflower Acquisition Ltd (US$495m), Finnish soundproof pods manufacturer Framery Group Oyj (US$267m) and Nordic sports equipment specialist group WS WeSports Group (US$53m).
• In 2025, there have been 49 IPOs greater than US$50m, raising $17.8bn in total, with an average issue size of $363m (vs 47 IPOs in 2024, generating $17.9bn, with an average of $381m).
• There have been three IPOs over US$1bn in 2025 with Verisure the largest IPO of 2025 at US$4,176m, surpassing SMG’s IPO of US$1,255m (September 2025) and Asker Healthcare Group IPO of US$1,019 (March 2025). This does not include Rosebank.
• In 2025, most core European IPOs have traded higher post issue with the key IPOs for 2025 (see right) up 17.7% on average post pricing. This has provided investors with a positive return and created a constructive ‘feedback loop’ for those issuers looking to come to market over coming quarters.
• Changes to the FTSE UK Index Series will heighten the attraction of a UK listing, allowing non-sterling denominated securities index inclusion, and a faster entry threshold for larger companies (free float greater than £1bn and market position greater than 225th).

IPO activity rebounded in 2004, 2010 and 2021 following a robust recovery in equity markets
 

^{Source: Dealogic. Analysis and commentary only includes transactions greater or equal to $US50m.
References to European ECM include the UK and exclude Middle East and Africa. Includes Investment Funds.
Charts show year-to-date activity levels. Note: Last rate rise occurred in 3Q23, the market narrative for rate cuts beginning in 4Q23, rate cuts only began in 3Q24.}