Will James
Geopolitics are set to dominate the short term outlook for European markets in 2025. Markets are not fond of uncertainty and Europe has suffered as a result, especially versus in the US. As we move through 2025, we should hopefully get more clarity on a number of fronts.
Trump's inauguration should hopefully remove some of the uncertainty surrounding the tariff picture and what the real implications will be for Europe. What, if anything, will happen with the Ukraine Russia conflict? Will French politics find some sort of compromise? Perhaps most importantly, the German elections in February will be watched with interest. If the polls are to be believed, the centre right party, Christian Democrats, led by the pro-European Frederic Mertz, have a comfortable lead and could form a coalition with the SDP or the Greens.
A coalition with the far right AFD appears unlikely, but the party continues to take share in the polls and that will be obviously looked at with interest. It's hard to predict at this moment what will happen, but we would argue a relatively pessimistic picture is already expected and priced into markets. If one is willing to look beyond the first quarter, one could paint a relatively positive picture that is clearly not expected by the market.
It’s clear that monetary policy, in our view, will and should remain supportive. If Frederick Mertz forms a coalition in Germany, there is likely to be more fiscal space created. He's argued for less regulation bureaucracy, lower taxes to boost growth and has said he would amend the debt break to fund increased investment. rom experiences only when Europe's back is up against the wall, that it tends to pull together and it certainly needs to be seen to and needs to.
Europe is home to a broad and deep universe of high quality global, leading undervalued dividend paying companies and once the clouds clear through 2025, we're hopeful that company fundamentals will reassert themselves and investors will sit up and take notice.
