Convictions
Summary
What's next for Europe and the World _ Replay
European equity markets: Resilience amid challenges
Over the past two years, European equity markets have lagged behind the US. However, recent developments indicate a promising recovery. Since January, European stocks have outperformed both the US and other key regions, showing resilience despite concerns over US tariffs and ongoing geopolitical tensions stemming from the Russian-Ukraine conflict.
While Europe won't be immune to the recently announced US tariffs, any potential impact is expected to be limited compared to other regions. Europe's diversified economy and strong domestic demand should provide a buffer against external shocks.
Although growth in 2025 is expected to remain modest, the medium-term outlook for Europe is promising. Structural changes and investments anticipated in the coming years are likely to drive economic activity across the continent.
Geopolitical implications and defence spending
Recent developments in US policy towards Ukraine has prompted a significant response from Europe, highlighting the urgent need for strategic decisions regarding defence independence. In light of the military disengagement of the US, Europe must take greater responsibility for its own security, a transition that is not yet fully prepared for.
To address these challenges, the European Commission has recently presented, as part of the ReArm Europe Plan/Readiness 2030, an ambitious defence package, offering financial levers to EU Member States to drive a substantial rise in defence capabilities investments1.
As Europe enhances its military funding, the various scenarios that could unfold in response to the ongoing situation in Ukraine should also be considered. These include a continued escalation of the conflict, a prolonged stalemate or, in contrast, a ceasefire. The latter would be the most favourable among the three, as it could lead to stabilization in energy prices, which are critical for Europe's economic health. Additionally, the estimated $524 billion2 required for reconstruction in Ukraine offers substantial opportunities for companies operating in the region, driving demand for various sectors and fostering economic growth.
Investment opportunities in equity and fixed income
We see several opportunities unfolding in equity and fixed income. While valuations compared to the US are compelling across the entire region, we see mid-caps as particularly appealing, offering lower valuations and stronger earnings growth compared to large-cap stocks. Looking at sectors, in addition to defence & aerospace, infrastructure, industrials, basic resources, software and banks are all expected to benefit from this environment.
The majority of the sectors aforementioned are likely to be favoured by the increased public spending. Software is in a good position as it is isolated from tariffs, while European banks are supported by the strengthening of the domestic economy and the European Central Bank easing policy. Their strong balance sheets are another positive factor.
Distinctive opportunities are also available in fixed income, where yields are still at compelling levels compared to historical averages. Investment grade debt is exhibiting strong fundamentals, such as contained leverage and high margins. We see opportunities in the banking sector, as the curve steepening driven by the ECB will allow them to borrow short-term cheaply and lend longer term at higher rates.
Amundi’s comprehensive range of solutions
As Europe embarks on a path of economic growth over the medium term, investors are presented with a unique opportunity to capitalize on the evolving landscape. With our extensive capabilities across equity and fixed income, at Amundi we offer a comprehensive range of investment solutions to support clients in meeting their diverse needs.
| Amundi Funds European Equity Income ESG |
| Amundi Funds European Equity | |
| Amundi Funds European Equity Small Cap |
| CPR – European Strategic Autonomy | |
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| Amundi Stoxx Europe 600 UCITS ETF |
| Amundi Funds Euro Corporate ESG Bond |
| Amundi S.F. Diversified Short-term Bond ESG | |
|
| Amundi Funds European Subordinated Bond ESG |
| Amundi EUR Corporate Bond UCITS ETF |
| Amundi Funds Euro Multi-Asset Target Income |
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1 Source: European Commission, “Commission unveils the White Paper for European Defence and the ReArm Europe Plan/Readiness 2030”, 19t March 2025, https://ec.europa.eu/commission/presscorner/detail/en/ip_25_793
2 Source: United Nations, “Ukraine: Post-war reconstruction set to cost $524 billion | UN News”, 25 February 2025.
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Date of first use: 31 March 2025
Doc ID: 4372990
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