Going abroad
There has been a lot of pessimism about Europe, given stalling growth, rising costs, tariff threats and the war in Ukraine. Former economic engine Germany has stagnated for two consecutive years and things don’t look much better in France, Italy, or elsewhere. Interestingly, European stock markets have performed well as of late, even beating the U.S. since the beginning of the year.
Snapshot: Increased military spending pushed the region’s defense stocks to all-time highs on Monday, while the STOXX Europe 600 Index (STOXX) has already climbed 8.6% in 2025, more than double the 4% return of the S&P 500 (SP500). Things look even better for the Euro Stoxx 50 Index (SX5E), which is up more than 14% YTD, and even for France and Germany, where the CAC 40 (CAC:IND) and DAX (DAX:IND) are ahead by 10.4% and 12.4% YTD. This bullishness has surprised many, especially when many nations in Europe are mired in political volatility.
What’s going on? European central banks are expected to continue easing as the Federal Reserve stays on pause, while Ukraine ceasefire talks are underway, as well as a push toward stimulus in prior fiscally disciplined countries. European markets are also way smaller than the U.S., so even a little bit of diversification money being transferred there will show an outsized impact. At the recent World Economic Forum, BlackRock’s (BLK) Larry Fink called investment in Europe a counter-trade, saying, “Always go against Davos and you’ll make a lot of money.”
Elsewhere: Germans are going to the polls this weekend, with the CDU’s Friedrich Merz poised to be the next chancellor, though he may face a difficult time forming a governing majority due to the rise of Alternative for Germany (AfD). On the ballot are stances over migration, as well as economic malaise prompted by the loss of industry and cheap Russian energy. For investors, there also might be more of a spotlight on reforms to the Schuldenbremse, or debt brake, to finance structural investments for the economy. In terms of foreign markets, Seeking Alpha subscribers actually see more opportunity in India compared to other regions for investment, according to the latest SA Sentiment Survey, though Europe came in second place. Will the gains last?
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