Finance
European construction stocks face reality check after record run
Published by Global Banking & Finance Review®
Posted on December 23, 2025
3 min readLast updated: January 20, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on December 23, 2025
3 min readLast updated: January 20, 2026
European construction stocks have surged in 2025, driven by infrastructure stimulus and AI trends. However, concerns about sustainability and valuation loom.
By Danilo Masoni
MILAN, Dec 23 (Reuters) - European construction shares have been among 2025's standout gainers, lifted by enthusiasm for thematic trades around Germany's infrastructure stimulus, hopes of Ukraine's rebuild and the AI-related boom.
The STOXX construction sector index is ending the year up 21% at record levels, but there are questions over whether momentum can continue or if price consolidation looms.
Building materials firms Holcim and Heidelberg have led the charge, on optimism over cement pricing and infrastructure spending.
Signs of a housing market recovery, lower interest rates and Germany's 500 billion euro ($580 billion) infrastructure plan gaining traction next year offer reasons for optimism.
The sector could also earn extra income from defence-linked orders as governments boost spending to meet NATO targets, though large-scale projects remain years away.
"We are seeing green lights for a construction restart," said Damien Mariette, senior fund manager at CPR Asset Management, a subsidiary of Amundi.
"The German plan is a positive catalyst and defence spending is the cherry on the cake."
CONSTRUCTION VALUATIONS BUILD ON LEAD
Peace in Ukraine could unlock major reconstruction and cut energy costs. Recovery needs may reach $524 billion over a decade, according to estimates cited by Kepler Cheuvreux.
However, timing remains uncertain and some investors caution that optimism is largely priced in, with questions over whether European firms - rather than U.S. rivals - will secure the biggest deals.
"Much of the good news seems to be priced in. Without a broad-based recovery and real contract wins, further outperformance could be hard to justify," said Andras Vig, multi-asset strategist at Invesco, adding that the sector looked "quite overvalued".
"Hope has largely driven the rally, but now we may need contracts to materialise."
Europe's construction sector now trades at about 17 times earnings, putting its premium over the STOXX at roughly 15%, up from 6% in January, LSEG Datastream shows.
RESIDENTIAL MARKET RECOVERY IN SIGHT
Morgan Stanley expects big German infrastructure awards only in the second half of next year with volume gains unlikely before 2027, which leaves "heavy-side" structural-material firms like Holcim at risk of pullbacks.
The bank now favours companies that could benefit from a recovery in Europe's housing market. Saint-Gobain is its top pick, replacing CRH, which it still sees benefiting from themes like cement pricing and Ukraine reconstruction.
Tom O'Hara, European equities director at GAM, said stocks more exposed to residential markets now traded at a discount to "heavy-side" names for the first time in years. "If we get good news on residential recovery, this could be an interesting catch-up opportunity," he said.
Despite uncertainties, it is hard to be outright bearish.
Kepler upgraded the sector to overweight this month: "A potential end to the conflict in Ukraine could be one of the sector's next major catalysts on top of falling interest rates."
($1 = 0.8532 euros)
(Reporting by Danilo Masoni; Editing by Amanda Cooper and Kirsten Donovan)
The STOXX construction sector index is a stock market index that tracks the performance of companies in the construction sector across Europe, reflecting their market value and performance trends.
A housing market recovery occurs when the real estate market begins to improve after a downturn, characterized by rising home prices, increased sales, and higher construction activity.
Building materials firms are companies that manufacture and supply materials used in construction, such as cement, steel, and wood, playing a crucial role in the construction industry.
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