Issue 22: Europe In The Brave New World

27 March 2025

The current Europhoria is justified for equity investors. Bond holders though should be concerned  about Europe’s fiscal position, which is less rosy than official numbers suggest,  and the looming surge in defence spending. Europe’s urgently needs to strengthen its defences. There is some catching up to do -  Europe still spends half as much as the US’s and the gap has widened. Weaning itself off US arms won’t be easy or quick. Overweight US defence stocks.  Stay underweight European government bonds. European fiscal positions are set to deteriorate sharply, and debt mutualisation, which has been rising since the pandemic – will become the norm.