Europe Insights

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Market spotlight: The world’s holiday destination

The summer holiday months are often a time reserved for relaxation, a break from the hustle and bustle of everyday life. For Europe, however, summer is one of the busiest periods as tourists flock to taste the culture the continent has to offer. This appeal extends beyond the summer season: Europe¹ attracts roughly 50 per cent of worldwide travellers². Its combination of dense tourism infrastructure, easy cross‑border travel, history, monuments, food, and beautiful, diverse landscapes appeals to travellers with various budgets and interests.

Figure 1: Top European destinations in 2026 based on overnight visitors (millions)

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Source: World Travel & Tourism Council Dashboard https://researchhub.wttc.org/dv-dashboard. Data as of August 2026 (2026 projections as of April 2026)

Demand for European tourism is resilient

Demand for European tourism has held firm despite recent headwinds from sharp rises in energy costs and aviation travel disruptions. Between 2019 and 2026, performance has been broad-based: two thirds of the European destinations saw visitor growth above the global average. Since 2019, overnight visitors are estimated to have increased by 16 per cent in Europe¹, with strong dynamics, notably in the Mediterranean and the small Central and Eastern countries (figure 2).

As the broader macro environment weighs on consumer confidence, travellers are now prioritising destinations perceived as safe and offering value for money³. They favour countries with easier border controls or limited foreign policy headwinds. Since 2019, some destinations have lost foreign visitors, like the US⁴ or those close to regions with geopolitical tensions (Ukraine-Russia, Middle East) including some Eastern European countries, Türkiye and even Germany (figure 3).

Figure 2: Growing momentum destinations over 2019-2026 based on overnight visitors (per cent variation)

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Figure 3: Declining momentum destinations over 2019-2026 based on overnight visitors (per cent variation)

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Source: Refinitiv, HSBC Asset Management. Data as of 12 February 2026

However, on the whole, Europe has strong conditions to attract travellers across a wide range of budgets and experiences. Monaco is eight time more expensive than North Macedonia, the cheapest destination in Europe. Cost-cutting policies in the aviation sector have made Slovakia increasingly attractive, with rising visitors, notably from neighbouring Italy. Alternatively, various tax hikes (Austria and Netherlands) or currency appreciation (Iceland) tend to have slowed the flow of visitors since the beginning of 2026.

Connectivity matters

Another issue travellers have faced is the disruption to air travel, particularly since April as the Middle East conflict intensified. These disruptions continue to push tourists towards more reliable alternatives to flying and rewarding destinations with strong access and flexible routes. Europe possesses extensive rail and road networks which make travelling the continent straightforward, without the need for flying. The Schengen area also allows visa-free travel across many countries. Major hubs like Paris, Brussels, Amsterdam, Frankfurt or Madrid have strong inbound capacity and connections, reinforcing Europe’s role as a global travel anchor.

Growth outside core tourism hubs

Despite the resilience in European travel, many of its popular destinations in Italy, Spain and Greece have not been insulated from broad price increases. However, smaller countries such as Albania, Bosnia and Herzegovina, Moldova, and Malta, are benefitting from record inflows of visitors, as tourists search for cheaper alternatives. These small countries have in turn improved transport infrastructure and connectivity. Malta has particularly benefited from its positioning as a reliable alternative to more saturated destinations, supported by its Mediterranean climate and widespread use of English.

Travel agencies and local players have developed new offerings, such as discovery destinations and travel experiences, such as wine cellars, agritourism or adventure tourism. Another such experience is ‘coolcations’: holidays deliberately chosen for milder temperatures, such as coastal North Sea areas, mountain regions or off-season Mediterranean trips. Northern European (Norway, Denmark, Sweden) or mountain destinations (Austria, Slovenia) have benefitted from this trend and attracted a growing number of visitors since 2019.

Europe has the potential to further leverage value from tourism

International tourism is important for Europe, especially as long-haul travellers usually spend more per trip, but domestic tourism is a potential growth area. For comparison, US residents generate nearly 90 per cent of the country’s tourism & travel sector’s value, compared to 65 per cent on average for Europeans⁵.

Domestic tourism has several advantages: it provides a stable customer base; it is less affected by exchange rates, border controls or geopolitical crisis; and it is more likely to benefit to secondary cities and rural areas. Additionally, short-distance trips reduce carbon footprint of tourism.

To leverage further value, investment in infrastructure is certainly key, but also investment in people. This includes extending access to training in languages, hospitality, communication and marketing skills. Harmonising qualifications and improving mutual recognition of the various training systems across Europe could provide a useful step in this respect.

Conclusion

Europe remains the world’s leading tourism destination, supported by dense transport networks, cultural diversity and a growing range of tailored travel experiences. While price pressures and geopolitical risks are reshaping visitor flows, they are also opening opportunities for emerging destinations and ‘coolcation’ locations across the continent. By enhancing package offerings, investing in skills and language training, and leveraging digital tools, European tourism players can capture a greater share of visitor spending and reinforce the region’s position as a resilient, high‑value travel hub. For investors and businesses exposed to the European tourist sector, these dynamics highlight both the resilience of demand and the potential to improve value capture through connectivity, product innovation and skills.

1 - Europe includes the European Union in addition to the United Kingdom, Norway, Switzerland, Türkiye, Albania, Montenegro, Serbia, Moldova, Bosnia and Herzegovina, Iceland.
2 - In this report travellers are defined as overnight visitors who stay at least one night in the place they are visiting. Business-oriented trips account for around 10 per cent of the total world trips (United Nations database).
3 - The European Travel Commission Barometer on travel intentions for the May–August 2026 period highlighted, among others, evolving travel patterns with increased budget awareness - ETC Barometer June 2026 - Long-Haul Travel Barometer 2/2026 - June 2026.
4 - Europe is often cheaper compared to the US including in accommodation, transport, food and attractions. Compared to the US, the cost of living is lower in most major European countries, from around -35 per cent in the Mediterranean destinations to -8 per cent in the UK. Source WorldData.Info Cost of living index (2025).
5 - World Travel & Tourism Council Dashboard - Data as of June 2026 (2026 projections as of April 2026).
For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector or security. The views expressed above were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and not guaranteed in any way. HSBC Asset Management accepts no liability for any failure to meet such forecast, projection or target.

 

European equities

AI and beyond

Europe may be better known for its tourism and cultural appeal than for cutting-edge technology, but its listed companies tell a different story. European businesses are embedded in the plumbing of AI, and the market’s relative distance from the frothiest parts of the theme make it a useful diversifier if leadership broadens or sentiment turns.

While most attention centres on a small group of American hyperscalers, semiconductor firms and AI platforms, the technology ultimately relies on heavy infrastructure: large data centres and the equipment that builds and runs them. That means power connections, cooling systems, specialised machinery, precision components and extensive copper wiring. Europe is home to many of the companies supplying these physical inputs. They are rarely household names but are often critical suppliers. As AI adoption accelerates, capital spending on equipment, power and infrastructure should rise – and Europe is well positioned to participate.

However, the European equity story goes beyond AI. Unlike markets dominated by a narrow set of industries, Europe spans industrials, financials, healthcare, consumer brands, energy and utilities, and a wide range of technology related suppliers. This diversification is a structural advantage that is often under appreciated.

Figure 1: Europe versus US equity sector weights

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Source: MSCI, HSBC Asset Management. Data as of 31 July 2026

Diversification is also found in where European companies generate revenue. They are strikingly global in their revenue mix: only around 45 per cent of sales are generated within developed Europe, and just 22 per cent in home markets. A substantial share of earnings comes from the US and Asia. For investors, that means European equities can provide diversified global exposure while still being valued and traded in European markets.

Recent corporate results are consistent with this picture of resilience. The latest Q2 earnings season was stronger than expected: 31 per cent of companies beat forecasts, and estimates were revised upwards thereafter, with a net 10 per cent balance of upgrades over downgrades. Over time, these upgrades can shift investor perceptions and support a re‑rating of the market.

Alongside this, remains at the forefront of innovation, even if it produces fewer giants than the US. By breadth of top performers, Europe is the leading region globally, with 12 economies in the Global Innovation Index top 20 in 2025, including six in the top ten. It also hosts numerous innovation clusters – Germany with seven, the UK with four – supporting strengths in applied engineering, research and specialist supply chains.

Figure 2: Global Innovation Index 2025 rankings overall and by innovation pillar

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Source: Global Innovation Index 2025, Innovation at a Crossroads.

Like any equity market, Europe is not without risk. Energy prices could spike again. Political tensions, both within and beyond the region, could weigh on trade and confidence. A sharp global slowdown would inevitably hurt European firms, given their international reach.

Even so, the balance of the story has shifted. Europe is tangibly benefiting from the build‑out of AI infrastructure. Its listed companies offer broad sector diversification and global revenue exposure, with a substantial share of earnings generated outside home markets. Recent results have been better than feared, with upgrades outpacing downgrades, while valuations remain low relative to many other major markets. Set against this, Europe’s wide and technically sophisticated innovation base adds a further layer of support for future growth.

European fixed income

Financing Europe’s next phase

Europe’s ability to turn its strength into sustained growth will increasingly depend on how effectively investment is financed across the region. Financial integration has therefore moved to the centre of Europe’s long term competitiveness agenda. Through initiatives such as the Savings and Investments Union (SIU), efforts to revive the European securitisation market and the broader Capital Markets Union (CMU), policymakers are seeking to create more integrated capital markets.

The objective extends beyond financial regulation as Europe has a substantial pool of private savings, but much of it remains in bank deposits rather than being channelled towards productive investment. Mobilising more of this capital could help finance innovation, infrastructure and corporate expansion, while giving European households greater participation in long term investment returns.

Figure 1: Euro area household share of financial assets (per cent)

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Figure 2: US household share of financial assets (per cent)

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Source: Federal Reserve Bank of St. Louis, OECD, ECB, ECB calculations, HSBC Asset Management. Data as of August 2026.

Europe’s more fragmented capital markets have historically constrained funding efficiency, market depth and the flow of savings into productive investment. By comparison, deeper US capital markets benefit from broader institutional participation, greater liquidity, stronger analyst coverage and more efficient capital allocation. For European companies, this can translate into a higher cost of capital and, in some cases, an incentive to seek financing or listings elsewhere.

Improving the depth and efficiency of European markets could help address this. Renewed efforts to develop the securitisation market are particularly relevant. A deeper market could broaden funding sources beyond traditional bank lending, distribute credit risk across a wider investor base and potentially free up bank balance sheets to support additional lending to the real economy. For investors, it would also expand the range of income and diversification opportunities available within European fixed income.

Figure 3: Bank loan versus net debt issuance within Euro area (EUR bn)

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Source: ECB, Euro area economic and financial developments by institutional sector: first quarter of 2026, HSBC Asset Management. Data as of July 2026.

The sovereign bond market is another important part of this picture. Recent global uncertainty has strengthened the appeal of euro area government bonds, supported by Europe’s institutional framework, a comparatively predictable monetary policy backdrop and attractive yields in parts of the market. Stronger and deeper sovereign markets can also provide benchmark curves against which corporate, financial and structured credit can be priced, supporting the development of the wider European fixed income market.

This creates an investment opportunity that extends beyond the current level of yields. Greater financial integration could offer more efficient markets for investors, while the development of securitisation and corporate bond markets broadens the opportunity set available to investors. At the same time, more efficient capital allocation could lower financing costs for companies and help direct Europe’s substantial savings towards the investment needed to raise productivity and competitiveness.

The implications are therefore broader than a simple valuation argument. European fixed income offers exposure to sovereign, corporate and structured credit markets at a time when the region is seeking to deepen its capital market architecture and mobilise more domestic savings towards productive investment.

For investors, the opportunity lies in combining today’s income potential with the prospect of a deeper and more diversified European capital market over time. Selectivity remains important across sovereigns, sectors and issuers, but progress of financial integration could strengthen both the quality of financing available to European companies and the range of opportunities available to long term fixed income investors.

Diversification does not ensure a profit or protect against loss. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector or security. The views expressed above were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and not guaranteed in any way. HSBC Asset Management accepts no liability for any failure to meet such forecast, projection or target.