Norman Villamin: «The Opportunity in Europe Remains»
Europe could be relevant to global investors again amid US efforts to address imbalances and Germany’s announcement of a historic fiscal package. While the market has already delivered strong returns, there is more upside ahead, according to UBP’s Norman Villamin.
European equities have posted stellar returns year-to-date with the EURO STOXX 50 and the DAX indices up 7.6 percent and 17.4 percent, respectively. This was in no small part due to optimism driven by Germany's landmark announcement of a 1 trillion euro ($1.15 trillion) fiscal package in March focused on defense and infrastructure spending.
«When I talk to my European friends, they look at me and say [...] Europe's not a place to invest. Invest in the United States. You come on holiday in Europe. You buy a new bag in Europe. You don't invest in Europe,» said Norman Villamin, UBP’s group chief strategist, in a media luncheon attended by finews.asia.
«And the reason that has been historically is European growth has lagged the US by roughly 200 basis points over the last decade and a half. But we think that's about to change with the new German parliament. If they deliver the fiscal stimulus that they promised – we believe they will – then you're going to get growth in Europe that looks like the US over the last decade. From here, we think the opportunity in Europe remains.»
Currency and Loan Growth
According to Villamin, UBP is particularly focused on two opportunities in Europe. Firstly, it anticipates the euro to strengthen against the weakening dollar towards 1.20 or 1.25 in the next 12 months. Secondly, the bank is positive on European banks due to expectations of loan growth alongside dividends which will be amplified by the currency’s strengthening.
«We think the combination of those is a good entry point to most investors who, let's be honest, have not been spending any time in Europe for the part better part of the last decade,» he added.
Donald Trump: Global Order Reset
The main driver for Germany’s historic fiscal package is due to US President Donald Trump’s desire to address imbalances in defense spending and trade. In addition to European equities, UBP believes this will spark other opportunities such as China which is seeing a pro-growth policy shift and gold which is undergoing a «secular bull market» as investors hedge dollar weakening and various macro risks.
«What is Donald Trump trying to do? He's trying to reset the global order. Nothing short,» Villamin remarked. «It's not because the US is strong. It's because of the imbalances in the global economy. The imbalances facing the US, in particular, are so large and so extreme. To be honest, there is no choice.»
Where Will Tariffs Land?
The leading question market watchers have on the trade war is how it will stabilize and what tariff levels will end up being.
«The low is going to be 10, the high is going to be 20. The answer is somewhere in the middle in terms of the average US tariff,» predicted Villamin. «How do we get there? Again, we see a lot of volatility.»
