Despite investor expectations to the contrary, 2019 proved to be a remarkable year for equity investors, with MSCI World's 28% annual return being the second highest in 30 years.
With over 90% of this performance coming from valuation expansion, as global corporate earnings largely stagnated, investors are rightly questioning valuations.
This is a well-trodden, generic narrative 11 years into a bull market, but ignores the huge performance dispersions we are currently seeing within markets, and sectors.
For investors willing to look beneath the surface, it is precisely this growing deviation between the region's winners and losers that excites us.
In 2019, the European technology sector once again outperformed the wider European market, its eighth successive year of outperformance.
However, the performance dispersion within the sector was huge, creating great opportunities for stockpickers who can back the right names. For example, last year, semiconductors outperformed IT services in Europe by more than 55%.
Equally important though is that within those semiconductor names, a global leader like ASML outperformed its German peer Siltronic by 62%.
There has been much debate surrounding the current valuation premium of quality growth in the market, which is undeniably high.
In Europe, unfortunately we are not blessed with an endless supply of high-quality, high-return companies exposed to clear long-term structural growth drivers. This creates a scarcity premium for these assets.
The technology sector, where we hold 27% of our Allianz Continental European fund, is home to many of these companies.
Within the sector, you find companies exposed to many of the mega trends such as AI, digitalisation, online payment growth, autonomous driving and cloud computing that will shape the way we live over the coming decades.
Exposure to these trends alone is never enough, as shown by the huge performance divergences between the winners and losers.
But with the right business models, good barriers to entry, and disciplined management teams, some of these companies appear to be Europe's few global champions.
Marcus Morris-Eyton is portfolio manager of European equities at Allianz Global Investors
• Room for continued outperformance in the European technology sector
• Strong inter-sector performance dispersion creates stockpicking opportunities
• Signs of complacency in the market after 2019
• Several European sectors remain structurally challenged