Europe is fast gaining attraction for investment managers, with leading investment firms such as Saxo Bank recommending European equities, especially those in government-backed defense and infrastructure sectors, which are predicted to offer strong upside potential in the wake of President Trump’s maverick policy and tariff announcements.
They also advise investors to diversify portfolios across sectors and regions to mitigate risks and enhance stability against market shocks amidst expectations of high market volatility.
“Europe is undergoing a major shift toward independence and self-reliance, driven by weakening US security commitments, deglobalisation, and a push for economic resilience. This has triggered unprecedented investment in defence, infrastructure, technology, and renewable energy, supported by initiatives like Germany’s fiscal stimulus plan and the EU’s defence loan – specifically favouring European over US suppliers, Saxo Bank said in its just-released ‘Q2 2025 Asset Allocation Outlook’.
The shift toward strategic autonomy, driven by geopolitical uncertainty and substantial fiscal stimulus, makes European equities particularly appealing, the report said.
Saxo said that for investors, this theme offers strong upside potential, backed by substantial government funding and policy momentum.
“[European] companies stand to benefit from reshoring efforts, local investment, and changing consumer preferences,” it said.
Saxo Bank, however, said the success of this theme depends on Europe’s ability to execute its fiscal expansion effectively.
Rising bond yields or political fragmentation within the EU could slow progress and dampen investor sentiment, it said.
Meanwhile, China’s pivot toward domestic consumption-driven growth creates opportunities in select sectors.
The outlook report also suggested investments in a targeted basket of European equities benefiting directly from Europe’s push towards strategic autonomy.
Investors can also gain direct exposure through specialised sector-focused ETFs, it said.
Globally, the investment firm said healthcare remains one of the best-performing global sectors year-to-date, reflecting investor preference for defensiveness amid economic softness and uncertainty.
“Supported by structural tailwinds such as ageing demographics, healthcare provides attractive stability, consistent cash flows, and dividend resilience, making it especially appealing amid rising recession risks,” the report said.
Saxo Bank said the traditional US role as a global economic anchor is being challenged as growth moderates sharply, with business and consumer sentiment reflecting heightened recession concerns, further amplifying market volatility.
“The once-clear path of investing – simply investing in a handful of leading tech giants and expecting automatic growth – has become far more complicated and uncertain. The era of easy performance may be behind us, and after two years of exceptional equity returns north of 20 percent,” it said, adding that markets now face the essential reality check. It’s time for investors to adjust expectations,” the report said.
Saxo Bank, however, said despite growing risks, it still sees markets moving higher, but with high volatility along the way.
“Investors face a rapidly evolving environment defined by elevated recession risks, geopolitical disruptions, and shifting fiscal policies,” it said.