A global market dominated by the US
Investors expecting automatic diversification from global equities may be disappointed. The United States continues to dominate global stock indices, leaving regions like Europe overshadowed. This scenario reflects ongoing economic issues affecting major European economies, compounded by shortsighted policies, excessive bureaucracy, and an overly ideological approach to the net zero energy transition.
Despite these challenges, European equities remain an attractive investment opportunity. Current valuations are modest compared to historical averages and significantly more appealing than the US stock market, which features high valuations and an overconcentration in a narrow range of tech stocks.
Fragmentation as a strength
While European stock markets are fragmented, they present compelling growth opportunities. Some countries in the region exhibit economic performance comparable to the United States, and European companies often align with key global structural trends, such as technological innovation and sustainability.
This exposure to structural growth factors positions the European market as a fertile ground for long-term investments. GAM’s EU equities team maintains optimism about the future, despite prevailing uncertainties.
Reforms needed to boost European competitiveness
The celebrated “Draghi Report” of September 2024 shed light on Europe’s structural weaknesses, sparking political enthusiasm but yielding limited concrete change. Key recommendations include reducing bureaucracy and adopting more pragmatic energy policies that balance decarbonization with economic growth.
Global competition is expected to intensify, particularly with Donald Trump potentially returning to the US presidency and consolidating pro-growth policies overseas. Europe must respond to these challenges with greater agility and strategic vision to remain competitive
