Updated Oct. 28, 2015 3:21 p.m. ET
For European stock investors, the eurozone’s lukewarm economic recovery is just right—not too hot and not too cold.
The region has continued its steady improvement, even after a slowdown in China sparked a global growth scare this summer. But progress has been slow enough to push the European Central Bank toward beefing up its stimulus measures.
That is good news for stock investors, who can see both rising corporate profits and continued central-bank policy that pushes buyers toward riskier assets.
“The economy is not stellar but it’s OK. That is a good middle ground for the market,” said Tom Clarke, a multiasset portfolio manager at William Blair & Co., which has more than $77 billion in client assets.
Mr. Clarke has been buying more eurozone shares in recent weeks, betting that a late-summer selloff had gone too far.
Shares in the eurozone have rebounded sharply from their heavy declines in August, helped by a strong hint last week from ECB chief Mario Draghi that the central bank is considering expanding its bond-buying stimulus program later in the year, or pushing interest rates further into negative territory.
Some investors say the moves could foreshadow a rerun of the first quarter of the year, when the launch of the central bank’s massive bond-buying program helped drive European indexes to record highs.
The Euro Stoxx 50, an index of blue-chip companies in the currency area, is up 9% in the last month. The index is currently sitting on gains of 8% so far this year, outshining U.S. markets, where the S&P 500 is barely positive for 2015. The euro has weakened this year, so in dollar terms, the comparison is less flattering: Measured in dollars, the Euro Stoxx is down around 1% for the year, although it has outperformed the S&P in the past month despite a drop in the euro.
Mr. Draghi’s rhetoric comes as the ECB battles ultralow inflation, exacerbated by a recent commodity-price slump. Consumer prices in the eurozone fell in September for the first time since the central bank began its bond purchases in March.
But many investors welcome the falling prices. The ECB’s ongoing struggle to push inflation back toward its 2% target means stock market-friendly stimulus measures will be around for longer.
Meanwhile, most money managers think the central bank will act to stave off a slide into a damaging spiral of falling prices.
“The inflation numbers have given Draghi the ammunition to push for further easing, but we aren’t too concerned about deflation. Draghi is saying the right things,” said Colin Graham, chief investment officer for multiasset investing at BNP Paribas Investment Partners, BNPQY -1.33 % which manages €532 billion ($587.8 billion) of assets.
And recent economic data indicate the region has been relatively resilient to the cooling of China’s economy. Figures last week showed a surprise pickup in business activity in October.
“As far as we would like to take equity risk, the eurozone is the place,” Mr. Graham said.
The ECB’s stimulus efforts have effectively goaded many investors into the stock market. The €60 billion a month bond-buying program forces down the yield on bonds in the eurozone, driving investors to look for better returns elsewhere.
The yield on a 10-year German government bond—the eurozone’s benchmark—stands at less than 0.5%.
And negative interest rates—effectively charging banks to hold excess funds at the central bank—have dimmed the appeal of cash.
That leaves many investors with nowhere to go but the stock market, according to Neil Dwane, global strategist at Allianz Global Investors, which oversees €412 billion.
“If you are looking for a return, you either have to take your money outside of Europe, or buy equities. Draghi is forcing European investors out of fixed income or cash,” he said.
Write to Tommy Stubbington at tommy.stubbington@wsj.com