How European Investors Prepare for the U.S. Election: As the U.S. presidential election approaches,
European stock investors take precautionary steps to anticipate a potential victory for Republican candidate Donald Trump.
Trump is expected to impose protectionist policies on European industries,
echoing a period of poor performance for European stocks under previous U.S. administrations.
Content
Betting on a Trump Victory
Investor Shifts
Tariff Threats
European Auto Sector Concerns
Renewable Energy Industry Under Trump
Defense Stocks
investment Tips
Betting on a Trump Victory and Its Impact on the European Market
Some investors expect a Trump victory to result in protectionist policies harmful to Europe’s export-driven industries.
Neil Birrell, Chief Investment Officer at Premier Miton Investors,
noted that the European market has begun to anticipate a potential Trump win,
with investors avoiding the investments that performed poorly during his previous term.
While companies listed on the S&P 500 derive about 72% of their sales from the U.S. market,
companies in the Stoxx 600 index generate only 40% of their revenues from within Europe.
The remainder largely depends on the EU’s largest trading partner, the U.S. markets.
Investors Avoid Stocks Tied to Democratic Policies
With increasing bets on Trump’s victory,
European investors have begun to shy away from stocks that benefitted under Democratic policies,
such as the Inflation Reduction Act and renewable energy firms.
These stocks include renewable energy companies like
Vestas Wind Systems and consumer goods firms like Pernod Ricard and Volkswagen.
Conversely, stocks that may benefit from a Republican victory have risen,
such as defense companies Rheinmetall and Thales and tobacco giant Imperial Brands.
Tariff Threats
Trump’s proposed policies include imposing high import tariffs and reducing corporate taxes,
raising concerns among European companies.
Strategists at Bank of America suggest that a Republican victory may give
the government has more leeway to impose higher tariffs and lower taxes.
According to Morgan Stanley, a 10% global tariff could reduce Europe’s growth by 0.3 to 0.6 percentage points.
European Auto Sector and Tariff Concerns
The European auto sector is particularly vulnerable to the threat of tariffs.
Trump has pledged to offer tax breaks to Americans who buy cars made in the U.S.,
which could jeopardize European automakers.
Unlike Volkswagen and Porsche,
companies like BMW and Mercedes-Benz may be less exposed due to their U.S.-based production.
Renewable Energy Industry and Trump’s Policies
Renewable energy companies such as Orsted and EDP Renovaveis
may face pressure if Trump halts support for clean energy projects.
On the other hand, companies connected to fossil fuels,
such as oil giants BP, TotalEnergies, and Repsol, may benefit from his pro-inflation policies.
Defense Stocks and Potential Increase in Defense Spending
European defense stocks like BAE Systems, Rheinmetall,
and Thales could see gains if Trump pressures NATO allies to increase defense spending.
Additionally, these companies may be impacted by developments in Ukraine,
as Trump has expressed a desire to end the conflict through direct negotiations with Russia.
Investment Tips Amid Political Noise
Some experts advise investors to look beyond the immediate impact
of the election and focus on company strategies, business cycles, and earnings as key market drivers over the long term.
Frédérique Carrier, Head of Investment Strategy at RBC Wealth Management,
said, “Our main message to clients is that business, innovation, and earnings cycles are far more important
drivers for financial markets in the medium to long term than those who sit in the White House.”
How European Investors Prepare for the U.S. Election