Europe
Investors Want MEGA: Make Europe Great Again
• Investors are predicting a turnaround in European assets, despite the ongoing underperformance of European equities since 2008.
• The artificial-intelligence boom, Ukraine war, and shift towards electric cars have all contributed to the underperformance of European equities.
• The new U.S. administration has threatened tariffs on European goods and cut European Union leaders off from peace negotiations with Russia.
• The Euro Stoxx 50 is up 12% since the U.S. election, compared to 3.5% for the S&P 500.
• Europe-focused equity funds recorded their biggest inflow since early 2022 during the third week of February.
• The rally is not just a bounce from the bottom, but a more durable transformation, dubbed the MEGA, or “Make Europe Great Again,” trade.
• The EU is looking at allowing its banks to park more of their assets outside of their balance sheets.
• The EU is also promoting key sectors such as electric vehicles and chips.
• The defense push is forcing officials to design an industrial strategy, with extra spending focusing on immediate needs such as ammunition and missiles.
• The EU will also need to slowly align different governments’ development and procurement plans for aircraft, ships, and tanks, and promote consolidation and collaboration between firms.
• The crucial question for markets is whether Germany will also change course.
