Trump, the biggest boon for European stocks?

In 2025, European stocks had a strong start, approaching a historical high for the first time in 25 years (just 20 basis points away from the peak): The Euro Stoxx 50 index and European bank stocks have both achieved double-digit returns year-to-date, outperforming the US S&P 500 index and Nasdaq index.

Now, under the unexpected catalyst of Trump's policies, global investors are re-evaluating the value of European assets. Goldman Sachs believes that as the US market experiences increased volatility under the "Trump effect," investors are beginning to seek markets with more stability and growth potential, and Europe is becoming a beneficiary of this trend.

Mark Wilson, a partner and managing director at Goldman Sachs, pointed out in a recent article that there are two major cognitive discrepancies in the current market regarding the US and Europe:

First, there is an overemphasis on US technological hegemony, neglecting the hidden champion clusters in Europe in high-end manufacturing, medical equipment, and other fields;

Second, there is an underestimation of the opportunities for industrial chain restructuring brought about by energy independence. After the full implementation of the EU carbon border adjustment mechanism (CBAM), the cost advantage of domestic green steel companies will expand to over 30%, which explains the logic behind ArcelorMittal's 26% stock price increase this year.

Trump's "Unexpected Gift"

Wilson pointed out in the article that Trump's policies have always advocated for "America First," but recent market performance indicates that his agenda may be providing unexpected momentum for European stock markets. The Euro Stoxx 50 index has achieved a return of over 15% year-to-date, and the German DAX index has outperformed the Nasdaq during the same period.

First, expectations surrounding Trump's policies are driving a global capital reallocation. As the US market experiences increased volatility under the "Trump effect," investors are beginning to seek markets with more stability and growth potential, and Europe is becoming a beneficiary of this trend.

Second, on the second anniversary of the outbreak of the Russia-Ukraine conflict, the market's focus has shifted from military confrontation to the reshaping of the energy landscape. Trump's recent engagement with Putin has triggered a chain reaction; according to Goldman Sachs' estimates, if Russian gas resumes transportation through Ukraine, the speed of replenishing European gas inventories will increase by 40%, and long-term gas prices may be adjusted downwards by 15-50%.

This expectation not only alleviates the pressure of the European energy crisis but also brings new growth opportunities to industries such as European chemicals. In the past two weeks, the trading volume of Ukrainian reconstruction concepts has exceeded $1.5 billion, reaching a historical peak.

The impact of the downward adjustment in energy cost expectations has a multiplier effect. After experiencing a 35% capacity contraction in the past two years (according to Bloomberg data), the current average capacity utilization rate in the European chemical industry has rebounded to 82%. Leading companies like BASF and Bayer have seen their stock prices rise by a cumulative 22% since the beginning of the year, far exceeding market expectations Goldman Sachs also believes that there is a significant "value gap" in Europe compared to the United States.

Although the three-year cumulative return of the European Stoxx Index is on par with the S&P 500, its constituent stocks have an average price-to-book ratio that is still 38% lower than that of U.S. stocks. This discrepancy is particularly pronounced in certain sectors: the dynamic price-to-earnings ratio of the European banking sector is 7.2 times, which is 45% lower than that of its U.S. counterparts, but the ROE gap has narrowed from 6.3 percentage points in 2022 to 2.1 percentage points.

This valuation gap has created unique "cross-market arbitrage" opportunities. Taking pharmaceutical giant AstraZeneca as an example, its American Depositary Receipts are valued at a 22% premium compared to the London main board, and similar situations cover 67% of leading European companies. The head of European equities at BlackRock pointed out, "When corporate fundamentals converge and the valuation gap exceeds 15%, capital will initiate a rebalancing mechanism." Currently, the market capitalization to GDP ratio of the European stock market is only 78%, significantly lower than the 158% in the U.S., providing a margin of safety for long-term funds.

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