We are living in history: in the moment in which the international capital flows which up to now have mostly focused on United States, are watching with greater interest Europe which seems to have better to offer: here there is a Germany for example that is planning to break down historical constraints and free up capital, rates are falling, stock markets are grinding out one record after another and economic prospects are not stratospheric but improving. On the other side of the Atlantic, US President Donald Trump has unleashed a trade war that will certainly damage the world economy, but also that of the US itself, while consumers are indicating a decline in confidence.
In short, for the first time a significant increase is taking place misalignment between European and US stock markets, in favor of the first. While the US stock index S & P 500 is down 1,8% this year, the European stocks are up nearly 9% to a record high, not to mention the other alternative to the US: Hong Kong technology stocks are up nearly 30%. Meanwhile, the euro has hit a four-month high above $1,07, while investors have halved their bullish bets on the dollar to about $16 billion since US President Donald Trump took office in January, according to weekly data from the Commodity Futures Trading Commission.
Sara Loved, Head of Investment Specialists Italy of Pictet Wealth Management In this interview he paints the picture and reveals what strategies must be adopted to solve the complex investment conundrum of 2025. Starting from the causes that determined the phenomenon, verifying the best assets and weighing the markets on both sides of the Atlantic.
What are the causes of this new phenomenon?
“The European outperformance in the early part of 2025 seems to be driven by a series of interconnected factors: cheap valuations, supportive monetary policy and timid economic recovery. Finally, the possible resolution of the conflict in Ukraine and some internal political crises (e.g. in Germany) have contributed to reduce uncertainty and increase investor confidence, further strengthening the performance of the European stock market. In contrast, in the United States, economic growth has shown signs of fatigue, with concerns about inflation, the effects of the MAGA economic agenda and interventions by the Federal Reserve”.
What could be the best strategy for an investor, taking into account the performance of the Magnificent Seven, the enormous diversity of capitalization of companies on both sides of the Atlantic, but also currencies, duties, prospects for peace in Ukraine? Would it make sense to divest from the US to buy from the EU?
“After years of anemic growth, the Eurozone could benefit from a more sustained recovery in 2025, with GDP estimates rising (around 1,5% according to some forecasts). For an investor, this is a good time to reassess the geographic allocation, increasing exposure to Europe, the Swiss market and selectively to some countries in the Asia-Pacific area, but without neglecting the US: despite the European outperformance, the United States remains a key market with a historical ability to generate high returns thanks to earnings growth, particularly in the technology sector”.
What is the best investment strategy?
“In 2024, a simple passive investment strategy would have allowed us to bring home a double-digit performance with little maintenance. This year, diversification and active portfolio management will be key to navigating a year that promises to be volatile, but full of opportunities. The magnificent 7 may no longer guarantee uniform returns, think of Nvidia and Tesla at -13.6% and -32% respectively since the beginning of the year”.
Do you foresee any M&A movements this year and therefore selective investments?
“For 2025, we strongly believe in the importance of a selective approach also to identify companies that are potential acquisition targets. We expect that favorable economic conditions, earnings growth and CEO optimism will revive M&A activity, which has been stagnant since 2021.”
What are the elements that an investor must keep in mind in his strategies to solve the enigma of this moment?
“As in any self-respecting crime mystery, this year we have to follow the three fundamental elements that drive the plot: means, motive and opportunity, translating them into what to invest, why and when”.
What “means” of investment are you thinking of?
“The ‘middle’ is represented by diversification in the European, Swiss and Asia Pacific equity markets. These markets offer a variety of sectors and companies that can balance our portfolio and reduce the risks associated with a single region or industry. Investing in private assets and hedge funds can also be an effective strategy to decorrelate the portfolio and reduce overall volatility”.
What are the underlying reasons to consider? And the timing?
"The 'reason' is in the economic recovery that is characterizing these geographical areas, with positive signs of growth and stability that make investments in these regions particularly attractive. Finally, as regards the 'timing' or the 'opportunity', it is crucial to know how to exploit any drawdowns, as they represent valuable opportunities to enter the stock market. Only by following these three principles will we be able to solve the complex enigma of investments in 2025".
