As with any investment, your capital is at risk.
As global markets navigate geopolitical uncertainties and shifting economic landscapes, Europe is emerging as an increasingly attractive investment destination compared to the United States. Several catalysts are converging to create a compelling case for European assets in the current environment.
In collaboration with our Global Bond Team, our Multi Asset funds are working to capture this long-term opportunity.
Europe: finally, a port in the storm?
The European economic outlook has improved, and we are optimistic about the investment landscape. We have long held the view that Europe would avoid recession over the last couple of years, as strong labour markets support consumption and are enough to offset challenges in the manufacturing sector. We now see additional catalysts for growth to build on this solid base.
In contrast, the US faces headwinds from its policy uncertainty and growth constraints in the form of tariffs, population decline via lower immigration, and a challenge to the US’s post-second world war hegemony due to current foreign policy. When you compare this to lofty market expectations for US growth, US equity valuations and the relatively few interest rate cuts that are expected, there seems to be ample opportunity for US assets to disappoint investors, at least relative to European assets.
Why Europe? Why now?
There are several factors that make the broader European investment case particularly compelling on a medium-to-long-term basis.
Our view is that the market is underestimating the significance of the German and EU fiscal plans. Germany has already approved an increase in its ability to borrow, which could see additional spending of more than €1 tn over the next 12 years. This could transform infrastructure and defence, and kickstart economic growth. This makes it the largest fiscal package since reunification in the 1990s.
Lawmakers in Germany’s Bundestag recently voted to dramatically increase defence spending
Simultaneously, the EU has outlined its plans to potentially unlock up to €800 bn of defence spending, a proposal similar in size to the EU’s Covid response funds. While still in the early stages, it indicates €150 bn in common issuance plus an additional €650 bn from relaxed fiscal rules for member states. While this makes it difficult at this stage to accurately assess the growth impulse’s magnitude, it will likely provide another positive tailwind for European growth.
Since these plans were announced, market expectations for growth in Europe and Germany over the next couple of years have risen noticeably. However, due to higher expectations of this fiscal package’s spillover effects, our estimates of the growth impact remain above the market consensus. We estimate the German package could add over 1 per cent to German GDP per annum, for the next 12 years, and the spillover effects to the wider EU could be as much as 0.5 per cent, even before accounting for the EU plans. This is a massive change for an economy with an average annual growth rate of just 1.5 per cent over the past 15 years.
Alongside this, European politics is entering a more stable phase after a period of uncertainty. Germany has formed a strong government, while France is unlikely to face elections until 2027. More broadly, Europe has come together in a way many thought impossible. Seeing the US back away from being the leader in NATO security, Europe is genuinely stepping up. This has created an almost wartime mentality among European leaders, bolstering European integration with some even calling for more ambitious spending beyond the current proposals.
Europe also stands to benefit in multiple geopolitical scenarios. If US policy uncertainty continues while Europe increases defence spending and joint issuance, European sentiment and asset prices should strengthen. Alternatively, if a Russia-Ukraine ceasefire materialises, Europe would benefit disproportionately through lower energy prices and shorter-term regional stability.
When viewed holistically, Europe is starting from a point of solid growth due to strong labour markets and real income growth. These catalysts combined suggest a positive outcome for European assets that is not reflected in current market prices.
Portfolio positioning
Within the Multi Asset portfolios, we have sought to capitalise on these opportunities by reallocating capital to asset classes that are well-placed to perform in this environment.
Within infrastructure, having reduced the exposure to US counterparts at the tail end of 2024, our preference is for investments in European utility companies, Spanish-domiciled Iberdrola and the Italian electric grid operator Terna. The steady and dependable income streams from long-term contracts provide investors with good risk-adjusted returns based on solid fundamentals. This is alongside the more attractive valuations of European utilities, given the strong share price appreciation of peers in the US.
Terna, the Italian grid operator, is building a 445-kilometre-long undersea cable joining Italy’s Adriatic coast to Montenegro. © Terna
There is a similar case to be made in the European Real Estate Investment Trust (REIT) market, which has presented opportunities within our property allocation. Valuations became more attractive towards the end of 2024 within the European logistic warehousing REITs, where we have allocations to operators such as Montea and Warehouses De Pauw. Importantly, we noted the strength of occupancy rates, the ability of the companies to increase market rents and the high barriers to new competition entering the market. The continued attraction of these three factors and lower valuations has shifted enthusiasm towards European REITs, given the strong runway of growth ahead of them over the long-term.
As we witness this European renaissance unfold, investors who strategically reposition their portfolios to capture these opportunities stand to benefit significantly. The combination of political stability, fiscal stimulus, and attractive valuations creates a rare window of opportunity. While the US market has dominated investor attention for years, Europe's resurgence offers both diversification benefits and compelling growth potential in an increasingly complex global investment landscape.
Risk factors
The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.
This communication was produced and approved in June 2025 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.
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