Europe’s great awakening: will Trump make Europe great again?

Key points:

• Trump’s aggressive policies may inadvertently strengthen Europe’s economic resilience, presenting long-term investment potential despite short-term volatility.
• Europe is shifting towards strategic independence driven by geopolitical events, creating attractive investment opportunities in defence, renewable energy, technology, and localised production.
• Significant challenges remain, including political fragmentation, short-term economic costs, and high debt levels—requiring careful risk management by investors.
• A basket of European stocks aligned with this theme offers investors a way to gain targeted exposure to the companies best positioned to benefit (see the shortlist here).

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Amid geopolitical storms, Europe's quest for independence reveals intriguing new investment opportunities.

It wasn't supposed to unfold this way. Donald Trump's aggressive trade policies, targeted directly at China and unsettling the global economic balance, might unintentionally hand Europe something quite unexpected—a chance to reclaim economic greatness and genuine independence. Could Trump's confrontational stance become Europe's golden ticket, transforming the continent into the surprise winner of this geopolitical saga?

Europe at the crossroads

Europe has long played the role of a comfortable passenger—secure under America's protective umbrella and satisfied with the steady flow of cheap goods from China. But Trump's disruptive approach to international trade and security has dramatically changed the scenery. His controversial tariffs and volatile policies have shaken faith in the dollar, rattled markets, and left traditional alliances strained.

For retail investors watching nervously from the sidelines, it's natural to feel uneasy amid this turbulence. But history reminds us that uncertainty breeds opportunity, and right now, Europe is sitting squarely at a critical juncture. The continent's leaders must decide: will they remain passive observers, or seize this historic moment to redefine Europe's economic identity?

Europe’s three wake-up calls

In fact, Trump’s trade war isn’t Europe’s only wake-up call—it’s just one of three recent shocks jolting the continent out of its complacency.

First, Russia's invasion of Ukraine, shattering illusions about lasting peace and stability on the continent and highlighting Europe's alarming dependence on external energy and security sources.

Second, Trump's aggressive policies have thrown into question America's reliability as Europe's primary economic and security partner. His persistent criticism of NATO and ambiguous stance on security guarantees has forced Europe to reassess how it safeguards its own interests.

Finally, Europe received another strong nudge from former Italian Prime Minister Mario Draghi’s recent report on European competitiveness. Draghi identified three critical areas where the EU urgently needs action to maintain its global standing amidst increasing geopolitical uncertainty:

1. Closing the EU’s innovation gap with China and the US.
2. Implementing a robust decarbonisation plan that aligns Europe’s climate ambitions with genuine competitiveness.
3. Enhancing Europe's security and reducing strategic dependencies on external countries.

Together, these three wake-up calls are reshaping Europe's economic and strategic landscape, and perhaps marking the dawn of a stronger, more resilient continent.

Europe's response: independence and resilience

Imagine Europe as a family living comfortably, relying heavily on their neighbours for security, power, and even groceries. Suddenly, the once reliable neighbours become unpredictable—even hostile. What would any sensible family do? They'd quickly start investing in their own security systems, buy solar panels for energy independence, and plant a vegetable garden for food security.

This metaphor precisely illustrates Europe's reaction today. Led by heavyweights Germany and France, Europe is now ramping up defence spending dramatically, creating lucrative prospects for the European defence sector. Simultaneously, billions are being poured into renewable energy to break free from fossil fuel dependence. Trump has effectively forced Europe to rediscover its strength.

Europe is also doubling down on rebuilding its industrial capabilities and renewing its ageing infrastructure, upgrading transportation networks, modernising manufacturing processes, and strengthening electricity grids. These initiatives aim to foster economic resilience, boost productivity, and create a solid foundation for future growth.

Could Europe actually emerge victorious?

Could this geopolitical storm, paradoxically ignited by Trump, truly make Europe great again—or even greater? The surprising answer is yes, provided Europe acts decisively. Trump’s tariffs might just be the catalyst Europe needs to deepen financial markets, localise production, and upgrade infrastructure, ultimately building a more robust economy that can withstand future shocks.

Risks and challenges: a reality check

While Europe's future is promising, investors should remain aware of the key risks. Political fragmentation stands out as a significant challenge: Europe's 27 nations often have differing priorities, making decision-making slow and potentially diluting major strategic initiatives. Additionally, reshoring production closer to home inevitably carries short-term economic costs, potentially pushing consumer prices higher and fuelling inflation temporarily. Europe's ambitious investment projects also demand substantial financing, putting further strain on countries already burdened with high levels of debt, especially if interest rates climb. Finally, Europe's innovation and productivity gap relative to global competitors like the US and China remains a persistent issue, raising questions about the continent’s ability to effectively compete on the global stage.

Recognising these risks is crucial. Europe's journey toward strategic independence presents enormous potential, but investors must navigate carefully, balancing optimism with disciplined risk management and portfolio diversification.

Real investment opportunities emerging in Europe

Despite these risks, Europe's strategic pivot opens doors to several appealing opportunities:

1. Defence: Europe's shield

Defence companies across Europe are poised for significant growth as governments boost military spending. Investors should look to aerospace, defence technology, and cybersecurity firms—but tread carefully, as valuations in this sector have already surged. Wait for pullbacks rather than chasing rallies.

Example to watch: Airbus, Safran, Rolls-Royce, Rheinmetall, Thales, BAE Systems, Leonardo.

2. The green energy revolution

Europe's green transition is just getting started. Massive investments in wind farms, solar parks, battery storage, and hydrogen solutions make renewable energy an appealing long-term investment. Expect government backing to be strong and enduring.

Example to watch: Vestas, RWE, Enel, Engie.

3. Tech independence: chips, clouds, and cybersecurity

Europe aims to reduce digital dependency on America and China. This strategic push includes heavy investment in European-made semiconductors, cloud computing centres, and cybersecurity solutions. Investors can tap into technology funds focused on these sectors.

Example to watch: ASML, SAP, Infineon Technologies, Nokia.

4. Infrastructure and industry: Rebuilding Europe's Backbone

Europe is significantly upgrading its industrial and infrastructure landscape. Ambitious projects are underway to modernise manufacturing sectors such as industry, infrastructure, chemicals, construction, machinery, and advanced materials. At the same time, large-scale investments are improving transportation networks, communication systems, digital connectivity, and critically, electricity grids essential for integrating renewable energy. This combined effort in industry and infrastructure not only boosts productivity but creates attractive, long-term investment opportunities.

Example to watch: Vinci, Ferrovial, Hochtief, Eiffage, SPIE, DHL, Air Liquide, Saint-Gobain, BASF, Sika, Heidelberg Materials, Arcelormittal.

5. "Made in Europe" – the reshoring wave

Localisation and reshoring are rapidly becoming key trends. Driven by strong consumer preferences for locally made products and significant government support, Europe is increasingly bringing production home. Companies that manufacture consumer products locally—from food and fashion to household goods and personal care items—are particularly well-positioned to gain market share from this shift towards economic patriotism and sustainability.

Example to watch: Volkswagen, Adidas, Nestle, Unilever.

Navigating the new investment landscape

Navigating this complex landscape requires patience, perspective, and strategy. Here’s a roadmap:

• Stay calm and disciplined: Don’t react impulsively to daily news swings. Have a clear, long-term strategy in place.
• Balance optimism with caution: Europe's future looks promising but comes with short-term volatility. Diversify into defensive assets like gold or high-quality bonds to cushion potential downturns.
• Focus on quality: Prioritise robust companies with strong balance sheets and sustainable competitive advantages.
• Consider currency dynamics: The declining trust in the US dollar could benefit the euro and European-based investments. Factor this into your investment decisions.

Trump's unintended gift?

In one of history's ironic twists, Trump's confrontational stance on trade and security might unintentionally spark Europe's revitalisation. Rather than weakening Europe, his policies could compel the continent to rebuild its defences, accelerate its energy transformation, and reclaim economic self-confidence.

Europe’s future isn't guaranteed; decisive leadership and careful investing are essential. Yet for those who invest patiently, this may well become Europe's defining decade.

Perhaps Trump's greatest legacy will be unintended: his battles might inadvertently "make Europe great again"—or greater than ever. As the saying goes, "Great wealth is often created during times of great disruption." For Europe and its investors, that moment is now.

Europe stands on the edge of genuine strategic independence, offering a historic chance to redefine the continent. For long-term investors, Europe's journey from vulnerability to strength could deliver the returns they seek. It’s time to view Europe not as the old continent—but as the new opportunity.