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The gloom surrounding investment in Europe following the re-election of Donald Trump as president of the United States is profound, inevitable, depressing and perhaps a little misplaced.
Sad season connoisseurs of investment outlooks for the coming year among investment banks and asset managers (well, I'm guilty of the accusations) know that the consensus at this point is truly overwhelming and d 'invigorating simplicity: buy in the United States. Keep buying from us. Believe in the story of American exceptionalism. Not only is the United States firing on all cylinders, but Europe is a mess. It is very difficult to oppose it and, from what I can tell, few people try to do so.
The message from Swiss bank UBS, for example, is that European stocks are expected to trend “sideways” in 2025. Consider this a rallying signal.
And yet the inconvenient truth is that one of the best performing stock markets in the world since the US election has been Germany's. No, seriously.
The Dax 40 index has soared in recent weeks, exceeding 20,000 for the first time in history. It's up 7 percent since U.S. Election Day a month ago (time flies), with a particularly notable acceleration since the final days of November. The American market has received all the attention, and this is reasonable, given that the S&P 500 index of flagship American stocks has a market capitalization of 51,000 billion dollars, compared to 1,400 billion euros for the Dax. It just matters more. Yet the German market's post-election rise is only marginally lower than that of its much larger American cousin, and outpaces its European peers.
What is going on here? “It’s hard to know exactly why” this is happening, says Gerry Fowler, head of European equity strategy at UBS. But he says it comes down to a few companies in the index.
He's right, of course. Topping the list is Siemens Energy, up 35 percent over the past month. Just behind is the arms group Rheinmetall, which rose 32 percent last month. In the next pack we have online retailer Zalando up 29 percent and auto parts group Continental, up 17 percent.
This is a useful reminder of some things. The first is that when investors collectively decide to move away from a particular sector, it doesn't take much buying to send individual stocks or national indexes soaring.
Fowler points out that across Europe, stocks with close ties to China have outperformed recently. Some courageous investors may have come to the conclusion that the situation in China's economy can only improve after a difficult year, and Europe is a good place to reflect this view.
Another reason is that immediately after the outburst of the American elections, Germany itself fell into a politically heated situation. Snap federal elections have been called for February and debate is intensifying over whether Germany should relax its long-standing resistance to more generous borrowing and fiscal spending. “There is hope that the German elections can bring change,” says Fowler, of the expanding deficit and overall corporate strategy, particularly in the crucial auto sector.
On the sidelines, other factors may play here. The loss of France is, for example, a gain for Germany: its political malaise has penalized its actions more heavily. Moreover, the story of American exceptionalism, combined with Trump's trade tariff plans, have generated an explosion of dollar strength – which means euro weakness. This is a boon for European exporters and should help mitigate the effect of additional customs duties. He also boosted euro zone government bonds in anticipation of slowing growth in the region. Falling bond yields act as a shock absorber by reducing borrowing costs and help support demand for stocks. This may not be enough to protect the entire region from underperformance, but it helps.
The most important point here is that the “US is good, Europe is bad” mantra is a brutal tool. Europe has not given up on its green energy transition, far from it. This supports demand for some of last month's big German winners. And the need for Europe to improve its defense spending, particularly since Trump's re-election, is clear. This opens up a lot of opportunities for investors who hope to at least know where to find them.
“That’s the main thing people need to remember: the European economy and European companies are not the same thing,” Helen Jewell, BlackRock’s chief investment officer for fundamental equities in Europe, told me this week. . “American exceptionalism does not mean Europe is horrible. That doesn't mean people should ignore it. . . People are looking for excuses to invest in the United States rather than Europe,” she added.
This is a common refrain among large asset managers, who often say clients often cite even minor episodes of political instability to justify abandoning Europe. A return to political tranquility in Germany and France would be very useful in convincing local investors to keep their funds in the region and in attracting foreign funds.
Add to that a slight glimmer of hope that Germany can break with tradition and spend its way out of trouble, and you already have the building blocks for a strong move forward in some actions that few expect. .
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