My version of ‘Euro summer’ is a bit different to that of the lucky Americans taking an extended trip round the likes of Ibiza and Mykonos. For me, Euro summer refers to the big rise in European share prices this year – as well as my own European trip to a conference in Paris. Slightly less fun than a beach bar… but it was in a hotel, does that count?
European optimism – with plenty of caveats
After my last investment conference in Orlando, Florida, I raved about the quality of US companies. American CEOs were very confident that they could manage higher tariffs (admittedly this was before the ‘Liberation Day’ big reveal). And, to be honest, Europe was hardly mentioned.
At the latest conference in Paris the reversal in sentiment was pretty stark. The optimism around Europe was palatable, as was growing uncertainty about the US. A cement company was already seeing an uptick in activity, while laboratory testing company Eurofins (which we own) highlighted noticeable energy among its German customers. These sentiments make sense; US policy uncertainty has been relentless while Europe’s largest market, Germany, changed its constitution to allow roughly €1 trillion of extra government spending.
Even more interesting, therefore, was the wave of caveats that quickly followed any hopeful comments. Plus ça change, peut- être … CEOs reminded us of the European onion – layers on layers of regulation – and the much lower productivity growth on the Continent. They estimate that this will delay any spending by one, two, three or even five years. Others highlighted Germany’s exposure to Chinese exports as another risk. There’s also no clarity on EU tariffs yet – Trump’s 90-day pause on US tariffs for all trade partners has since been extended to 1 August to allow for further discussions. The mood music is also only really changing in Germany; one CEO told me, “Everywhere else is still rubbish.”
Still, I left feeling hopeful as a European that things were looking up – at least in Germany. And besides, a revitalisation of a common market’s largest player is good for the whole. But as an investor I wondered if the stock market had already priced in this good news without leaving enough of a discount for the risks around just how long the stimulus may take to reach the bloodstream. The German stock exchange was up more than 20% this year already.
US policy certainty declines, US stock market rises?
Throughout the sudden mood shift in Europe, we’ve been resolute in our view that US companies are often better-quality businesses than their Continental counterparts. That’s thanks to better investment decisions, lower regulation and greater entrepreneurial spirit. This conference confirmed that view for me. There were plenty of conglomerates sitting on inefficient cash piles – why not invest in projects that should make much more than overnight rates or return that money to shareholders?
One meeting with five personnel from a single company reminded me of existing productivity challenges, as did a company proudly telling me they had finally moved from 11 different resource planning systems to only one.
When you invest you could lose some or all of your investment.
But the strong recovery of the US stock market since its Liberation Day losses has left us feeling nervous. Although sales volume trends remain unchanged for now, the Paris conference revealed a lot of uncertainty amongst European CEOs. We own industrial gas company Linde, whose packaging customers had reduced their expectations for US sales later this year in light of greater tariffs.
Over in healthcare, companies were feeling the impact of DOGE-related public sector job cuts and slower equipment purchases by customers in research labs fretting about government funding. DSV, which arranges shipping logistics, acknowledged the chopping and changing in trade policy has been challenging for its customers.
Being able to lift the lid on how CEOs are thinking is always a highlight of my job. This conference was no different. However, it certainly doesn’t feel like the recent market choppiness isn’t ending anytime soon. It will be nice to take some time off for my actual Euro summer later this month and I bet the CEOs are feeling the same.
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