Transcription
We can clearly feel that the world is changing. The quiet globalization, that of the last 20-30 years, is seriously starting to crack. We are talking more and more about geopolitical tension, reshoring, the economy, blocs, and naturally, for us investors, this poses a real question. Is it not completely overturning our way of investing? What if tomorrow sovereignty became an investment criterion in its own right? What if investing in European sovereignty became a real strategic angle, not just political discourse? In this video, produced in partnership with Amundi, I welcome Roxane Philibert, a strategist at Amundi Asset Management. Hello Roxane, thank you very much for being with me today to talk about European sovereignty. It's true that for, let's say, the last 15 years, all investor eyes were turned towards the United States, and that intensified about ten years ago. It was really American tech that absorbed all attention. And then, miracle, I want to say, in 2025, we turned back towards Europe. What happened? What changed?
Yes, hello Xavier. Thank you for having me here. If we look a little at what has happened in the ETF market, for example, since the beginning of the year, we have really seen a rotation towards European stocks, and this has been very visible in ETF flows. Because if we look at the last four years, we have really seen a neglect of European assets. If we accumulate over the last four years, we have about 20 billion euros of assets allocated to European stocks through ETFs. If we compare this to the United States, it's more than 180 billion euros. So we have really seen a divergence between the two blocs. Now, what happened in 2025 is quite interesting, as we saw more than 60 billion euros allocated to European assets through ETFs, while we saw 35 billion for the United States. So, we have really seen a rotation towards European stocks. So why did we see this? It can be explained by several things, but the first is the fact that there is much more positive economic activity than we have seen in the past. So we have had quite positive figures for the Eurozone, which have even surprised on the upside. So, in particular, we have good figures, and moreover, they have surprised. They have surprised investor expectations. So, what has really allowed for a wind of optimism in the Eurozone. If we look at indicators like the PMI, it is now above 50. So, this means we are in a growth phase. And if we look at the last 10 months, it has always been above this indicator of 50, which means we are in a growth phase. So, really a positive wind if we look at economic indicators. If we also look a little, we have seen that there have been many reforms and quite favorable fiscal policies for European countries, with, for example, the stimulus in Germany which allows for unlocking investments for infrastructure, for many sectors of the country, and which will also allow for relaunching the economy in certain areas. We have also seen a decrease in inflation. So, this has also been positive for the markets, because if you have inflation that is quite controlled, it ultimately means that central banks can lower rates, and therefore, this again stimulates the economy a little. And I would finish by saying that there has also been a change in investor behavior, because, as you said, they were very allocated to the United States, where there is a strong concentration of companies. So, stock market indices are very concentrated in tech, as you mentioned, and therefore a desire to diversify, to look elsewhere, to other sectors, to other countries, to other regions, in order to diversify their portfolios a little, especially because valuations are quite high in the United States, again, in tech, and therefore to find opportunities, opportunities located elsewhere than in the United States.
Hm hm. So, there is almost a double effect of investors who are happy to be less exposed to the United States and to finally be able to reduce the American tech share of their portfolio. But it's not just that. There is really an industrial push behind it. After all, since you're talking about PMI, so this aspect where it's very production-oriented. So, there are the two effects. Is this a fad, or is it really something sustainable that is here for the long term? We think it is really something sustainable. We have also seen that it was not a tactical rotation. And moreover, if we look a little more closely at ETF flows, ultimately, we have seen a strong acceleration in the first part of the year. We still see positive allocations to Europe, even in the second part of the year, even though we have also seen a recovery in the United States. So, this means that in the first part of the year, we saw very few flows into US stocks through ETFs. After the summer, we did see a rebound in US stocks in terms of ETF flows, but not at the expense of what happened in Europe. So, we still see a very positive allocation to European stocks, and therefore we see that this will probably continue in the coming months. And in fact, these changes, this rotation, did not happen in a specific sector or in particular companies. It really happened based on structural changes within the economy, with, as we said, fiscal reforms, reforms in many aspects to regain a little of that autonomy that Europe has probably lost a little. We will come back to that. And so, if we talk, for example, about the stimulus in Germany, we estimate that the positive impacts on GDP, for example, will be in the order of 1.5 to 2.5% of GDP. So, we really have quite significant long-term effects on many sectors in Europe.
If we talk about valuations now, so this is a subject that interests investors a lot. Until now, the idea was that Europe is less valued. So, if we look at historical averages, Europe was below its historical average. Now we are at a high level. Whereas on the American side, we are well above that. And until now, the narrative was that this is explained because growth is there, and in Europe, we have less growth. So, this narrative is no longer valid today. So, it is true that regarding valuations, we have today lower valuations in Europe, and this is also why many investors have chosen to diversify their allocations by investing in Europe. What we need to keep in mind is that today, valuations also depend heavily on the sector we are looking at, and therefore the composition of stock market indices is very important. In the United States, we have an index that is largely dominated by tech. We have more than 36% of the index of American indices that are in tech, compared to 8% in Europe. So, we already have diversification, we have had a change in sector composition between the two indices, and therefore this will naturally create disparities in terms of valuation. If we look at European indices, we are much more into what we call value stocks, which are quite undervalued or at least they are quite attractive from a valuation perspective. And so, these will be sectors like energy, like banking, which are ultimately quite cyclical, where valuations can already be more interesting by nature. So, there is already this aspect to keep in mind. Today, we have seen that valuations in Europe have been largely impacted by the economic, political, fiscal, and regulatory context in Europe, which has been quite negative for companies and therefore a lack of growth for companies. Today, what we see is that we have estimates of profit growth for European companies that are largely revised upwards. So, for 2026, we are establishing this growth, there are estimates made at more than 10% profit growth, compared to values that were rather around 0 or even 2-3% for past years. So, really today, we have these valuations that reflect the past and the quite difficult economic context of Europe. But today, we have valuations that reflect, in fact, a growth potential, or at least that do not reflect this potential growth that is to come.
Now, given that we are really in an international context here, with Europeans investing in the United States and Americans doing the opposite, well, anyway, we are truly globalized, there is also a big impact, which is the exchange rate. And here, the dollar has weakened significantly, especially during this year 2025, which has helped the performance of the Eurozone in general. Is this just a small short-term boost, or is it perhaps something that has brought about a trend, perhaps for the euro against the dollar? I find that to be a very interesting question, and it's true that when we look at the effect of the dollar, obviously there is a small mechanical rebound effect, and moreover, if we look a little at European companies, it will naturally have an impact on their growth. For example, if we look at companies that import goods priced in dollars, it will naturally reduce their costs, it will reduce what we call imported inflation, and therefore it will boost their productivity a little. So, there is that effect. Now, in the long term, we also see that there is indeed a real challenge from the United States, particularly regarding debt. And so, we ultimately see that this fall in the dollar has had an impact on the perception of the dollar as a safe haven, and that it can truly offer opportunities elsewhere now and therefore support non-dollar assets, and therefore European assets, in the long term.
Hm hm. We talk a lot about the de-dollarization of the world. We've been talking about it for a long time, but we don't really see it. And perhaps, indeed, since the beginning of the year, it's the first time we've seen a somewhat significant movement. So, if I understand correctly, there would be almost a double engine for Europe's performance, at least in terms of stock markets. There would be the economic performance itself, as you said earlier, with profits that are very strong, or rather expected to be very strongly increasing in the coming years, and on the other hand, potentially a second engine, which would be the currency.
Exactly. We briefly touched on the issue of flows earlier, because that's also why I wanted to interview an expert from Amundi, as you have a view on the flows that pass, particularly through ETFs. Are the inflows into Europe really diffuse among all countries, all sectors, all sectors, etc., or is it dedicated to certain sectors or certain countries? Yes, so it's true, we have seen a lot of flows into Europe, and if we look a little at the flows on the continent, in fact, half of them have been really on a very global stock market index, so on Europe, and we have also seen a lot of flows into sectors, which is quite rare for the European market, since generally these sectors are more played in the United States rather than in Europe. And so, we have seen a lot of flows in the industrial sector, with in particular a lot of flows in defense, obviously, which has been made possible by ETFs, particularly in defense, with new products that have been launched, and a lot of flows in everything related to financial services, also in the banking sector.
Now, what is also interesting is that we have also seen flows into country allocations, particularly in Germany, where we have seen quite a few flows into ETFs that track German indices. If we now move on to performance, well, we know that flows and performance are necessarily linked, but what has driven European performance this year? Yes. So, I would say that in 2025, it is really defense that has performed very well. Particularly because we have had orders from states for these companies, somewhat record-breaking, and therefore this has really boosted the performance of these companies. We saw a slight slowdown in the summer, but ultimately with a recovery more recently. We have also seen good performance in the financial sector, with quite positive results, with still very solid balance sheets from financial institutions, and margins that are still positive despite a drop in rates. We have also seen quite positive performance in the tech and especially semiconductor sector, despite a somewhat timid start in this sector. Ultimately, we have had good performance with profit revisions that have been revised upwards, and finally, outlooks that have been quite positive for the rest of the year. And then, perhaps a little less publicized, I would say, we have also had good performance from slightly smaller cap companies, so with slightly lower capitalizations, which have also supported these stock market indices, particularly in the areas I mentioned a little earlier. And obviously, we have talked a lot about past performance. Obviously, these do not predict future performance in any way. It's funny because it ties into what you were saying earlier, it's not a short-term tactical reallocation. If it had only been defense, we might have said, "Ah, well, everyone is playing the defense angle because of the war in Ukraine, etc." And then we have financials, as you said earlier, which were value, so the sidelines, and then we have semis, etc. So, we realize that it is indeed more of a tidal wave, at least that's the impression it gives, than just a reallocation to defense.
From my perspective, a question I ask myself is, are Europeans returning from American stocks, saying, "Well, actually, at home, we also have good stocks, good sectors, or good indices?" Or are Americans rediscovering Europe? Well, that's a very good question, and to answer you, we can look a little at the flows on ETFs, because we have ETFs that are naturally domiciled in the United States, and therefore we can see a little bit of American behavior. What we have seen is that this rotation, which has been quite extraordinary, has been seen mostly in Europe. We have not really seen the same effect in the United States, but we also know that Americans have a strong domestic bias to invest naturally in their market. And what can also make us believe that they have broadened their horizons a little is that they have also looked at quite a few stock market indices that were global ex-US. And that is quite interesting because ultimately we see that Americans do not necessarily invest by bloc like Europeans can do by having their US, Europe, emerging countries bloc. Americans, they rather invest in US and then it's Global and ex-US. And so, we have seen a little activity on these indices, which has shown that there was indeed a tendency to want to invest a little outside the United States, especially in a context that favored European stocks.
Here, we are talking a lot about flows, but will Europe become an industrial powerhouse again? Because flows are very fast. We see in a few weeks, money can be brought back, so to speak, financial flows into Europe, but to rebuild factories, to relocate them, that's another story. Is Europe taking this path? Yes, it's true that flows only show investor dynamics, but we also see, in parallel, structural reforms and massive investments in very strategic sectors for Europe to rebuild and improve the productivity of European companies. So, we think this can really be a growth driver for European companies.
Hm hm. And from the investors' perspective, one might think that there is a kind of rebalancing of geographical areas. That is to say, before, it was 70% in the United States, and then in people's minds, it will settle to have, I looked it up, it's around 15% in Europe on large MSCI World indices. So, in investors' minds, could we go from a share of 15% to 20% or 25%, perhaps a normalization, because that was the case in the past. Yes, I think so, and it's very interesting when we look at global indices, they are ultimately heavily overweighted in the United States, and today, European performance has highlighted the fact that if you have an ETF that tracks a global index, you are ultimately missing out on this good performance in the European market. And so, we are perhaps expecting a rebalancing of areas, and in any case, that is what we have seen from investors today with these flows into the European market.
We are now getting to the heart of the matter, as today's topic is European sovereignty and, in particular, European strategic autonomy. I would like you to explain this concretely, but before that, what are the recent events that have accelerated this awareness of sovereignty? If we look a little at the term "strategic autonomy," it is really the capacity for Europe to be able to produce and invest quite independently of other European countries, and to be able to invest in strategic sectors and its infrastructure to maintain this independence from other countries. And the events that have accelerated this trend, obviously, were Covid, because there was a real health dependence during the Covid crisis, and therefore there was a desire for a little more independence in this sector. Obviously, in terms of technology, we saw that after the reopening after Covid, we had many difficulties in terms of supply chain, particularly for semiconductors, with a market that was ultimately quite marked by this crisis, because if we look at Europe, we have about 10% market share in this sector, a very marked dependence. And then more generally, we realized that we had a major dependence on tech, and particularly American tech. If we look at cloud infrastructure, more than 70% of cloud infrastructure in Europe depends on three companies. I think you can name them, we can all name these three companies. And then, obviously, we had the war in Ukraine, which, I think, really highlighted three major dependencies for Europe. The first is energy dependence, with obviously a strong dependence on Russian gas, in particular, but not only, in general, we really saw an energy dependence with more than almost 60% of energy imports coming from outside the EU. So, energy dependence. We also have a dependence on defense, because there has been massive underinvestment by the European Union in the defense sector, and this has ultimately been building for some time, after the fall of the Berlin Wall. Finally, Europeans stopped investing in this sector, and today, we have gone from almost 1.5% of GDP invested in defense, whereas NATO targets are rather around two. So, we have really seen massive underinvestment in defense. And then the last point is food security, where we also realized that there are many imports that come from outside the European Union, even if we are self-sufficient in many sectors, there are still dependencies, particularly on vegetable proteins, for example, where we really need a little more independence. And then I would say there is a last point about the overall geopolitical context, where we have seen that ultimately there has been a bit of global protectionism that has been put in place on a global scale, with restrictions that have been made. Admittedly, we have had customs duties that were quite significant, but we have also had quite a few restrictions on imports or exports for some materials, and I am thinking, for example, of industrial materials, with a five-fold increase in restrictions on industrial materials since 2009. So, we see a market that is closing a bit, and therefore which reflects even more the dependencies we have seen in the past.
So, if I try to think in very concrete terms for an investor, in terms of sectors or companies, so if I understood you correctly, there is the whole tech cloud part, there is everything related to energy, there is everything related to defense, then less visibly on the stock market, but food sovereignty, etc. And then your last point is interesting about customs duties, even industry in general, since it needs to be reproduced, this is really what we saw during Covid, it's recreating more local value chains. Are these the main sectors that can be played within strategic autonomy? Yes, I would say that's a good summary, and ultimately we see very clearly that it's not just defense, it's not just a few sectors that can really find opportunities in this theme, and it's really all the value chains and having actors who can contribute precisely to reinvesting and reinvesting within Europe in strategic and quite diverse sectors. And if we look at agri-food, well, obviously there are also leaders in agri-food who can ensure a little more independence in terms of food security.
Hm. And this completely changes the vision we had of Europe as an investor a few years ago, because a few years ago, it was luxury, it was pharma, some large pharma groups, there was already a bit of tech in semiconductors, but ultimately, we are playing completely different sectors. Well, playing is not the right word at all, but there is a wave of new sectors that are completely new and were completely neglected in Europe. Yes, in fact, I find that quite interesting, because ultimately, we have European players and leaders who still have significant growth opportunities. But ultimately, the growth drivers will be a little different. And moreover, the growth drivers will become increasingly important, particularly in terms of strategic autonomy. It's true that for luxury, it's perhaps one of the only sectors that doesn't necessarily fit into this strategic autonomy. But it's still a very interesting sector, as it remains quite inelastic. If we look at demand for luxury, it remains quite inelastic, with demand that is particularly strong in Asia. And so, moreover, if we look at the performance in 2025, the consumer discretionary sector has performed very little or very poorly in 2025, but ultimately luxury has still done well. So, we still see that there is demand for luxury, even if it doesn't necessarily share the same growth drivers.
Hm. Here, we are talking about autonomy in important sectors. We are talking about restoring autonomy in technology, in energy, in food. Can we do everything at the same time in Europe? Yes. Well, it's not without challenges, obviously, but there are plans today, initiatives that are being put in place by the European Union with quite astronomical amounts, compared to everything we have known in recent years. If we look at defense, obviously, it's more than 800 billion for the Riarm Europe plan or Readiness 2030 for its new name, with the possibility for countries, for example, to exceed their debt if it is to invest in the defense sector. Then, for tech, we have also had many investments, particularly the Chip Act, which has been put in place precisely to increase our market share in semiconductors from 10% to 20%, which is the objective. Today, we see that there are indeed challenges in this area, and we don't know if we will be able to reach these 20%. So, there is probably the idea of a Chip Act 2. So, we really see the desire to monitor the developments and progress on these reforms in order to adjust investments and strengthen them if the objectives are not met. Especially in energy, obviously, there is the Green Deal, which also allows for better supply of materials to Europe for renewable energy, and then obviously Repower EU, which will also facilitate investments in various areas, whether it's R&D in renewable energies, storage spaces, hydrogen projects. So, we really have a desire to cover as many sectors as possible at the same time. It will be quite complicated to do everything at once, but we can also rely on European leaders today with the consolidation of certain companies to meet the demand, which is quite significant, and we have already seen this in the defense sector, in the aerospace sector, with several major European leaders joining forces to deliver, innovate, and produce according to the demand that is arriving.
We have understood well, therefore, the interest in investing in Europe or returning to Europe. Should Europe be seen as a homogeneous bloc in which one should invest globally across several countries, several sectors, a large number of companies, or rather as a stock-picking ground? That is to say, trying to target the few companies that will benefit most from this new European sovereignty. Well, obviously, it will really depend on investors' risk appetite, but today, I find that we no longer really have this dilemma. Hm hm. Because precisely, ETFs offer sufficient granularity to invest in certain themes, in certain sectors with quite significant granularity. Today, many indices are available to precisely target a sub-sector or a particular sector. So, when we talk about defense, for example, it is really a sub-sector. So, we are not even at the level of traditional sectors, we are really at a sub-sector, or more thematic approaches that allow us to group several companies with common characteristics. So, here, we can talk about strategic autonomy. So, always having a diversified approach but with common characteristics and therefore growth that can fuel this type of company.
An important point for many investors is the PEA (Plan d'Épargne en Actions), which remains a very good vehicle for many French people. So, this is also a huge asset that is added, I would say, because it is a constraint for many investors to feel obliged to go outside Europe to invest. So, the PEA is a real asset. Yes, the PEA really allows French investors to invest in the Eurozone. And so, today, we have a diversity of indices and therefore a natural diversity of ETFs that are eligible for the PEA and that really allow investing in these more niche sectors or themes within Europe.
Hm hm. We have lived through a period, and in my opinion, it's not over, where there have been enormous disparities between sectors in terms of performance. Does this encourage you to target sectors or rather to diversify, because we don't know which ones will perform best or when? Yes, that's true. And moreover, we see rotations. So, in a year like 2025, we will have sectors or sub-sectors that perform differently depending on the cycle and the results. So, I would say that in the long term, obviously, having a slightly more global approach and being able to have a broader overview if you don't want to rebalance your portfolio every month, because you are not necessarily listening to all the reforms and all the company earnings releases. So, having a slightly more general approach, but you can also build your portfolio with several themes that will benefit from all these investments in strategic autonomy and therefore be able to select themes and be able to, for example, remove sectors on which you are not necessarily favorable, and thus be able to choose a little more to navigate the markets.
Are there any mistakes to avoid for an investor who wants to invest in Europe? Well, I would say there is, well, I don't know if it's really a mistake, but in any case, there is a bias. Investors generally, we all have this bias of investing in things we know. Hm hm. And so, ETFs also allow us to extend the field of possibilities a little by investing in companies that are not necessarily known to the general public and that will nevertheless benefit from the structural changes we have seen in recent years. And so, the first mistake for me is to invest in things we know from everyday life, because in fact, we will still have quite positive trends for a large number of companies that cover the entire value chain, and therefore investing in this value chain in general can be a real opportunity. And a second thing to perhaps avoid is regarding dividends. So, we see that the European market offers good dividends compared to, in particular, the American market. We are rather at levels of 1%, whereas in Europe, we are rather around 3%. So, this allows for a quite stable and quite positive return on these stocks. Unfortunately, we must also be careful when dividends are too high. Sometimes it hides weaknesses for companies, and therefore to control in terms of sustainability of the dividend and to ensure that we are not on a trap, as some companies might do.
Hm. It's a bit of a classic. We think the dividend is high, but in fact, it's just the stock price that has collapsed, and the following year, the dividend might be cut in half, and so on. But it's important that you say it, because I know it's a very important criterion for many investors. Roxane, can you give us a quick overview to understand the different indices that exist for European stocks? Yes. So, there are many indices available for investing in Europe. If we talk about the broadest ones, we will have all European countries gathered, with for example, the MSCI Europe or the Europe Stoxx 600, which allow for a very broad investment. Then, we can focus just on the Eurozone. So, for example, having a Euro Stoxx or an MSCI EMU, which allows us to remove countries that are not in the Eurozone, such as the Nordics or the United Kingdom. We can also have a sector-based approach with all the sectors we know, tech, industry, financials, etc., a more thematic approach with defense or with strategic autonomy, and finally, we can have a country-based approach with stock market indices of the main European countries, such as the DAX or the CAC 40. So, normally, an investor should be able to make their choice from the broadest. So, as you indicated, it's all of Europe and not just the Eurozone. So, you mentioned the United Kingdom, there are also the Nordic countries, etc. Then, we are on a very broad or less broad Eurozone, the Euro Stoxx 50. Well, here, we can choose whether we focus on the very largest or whether we try to diversify a little more, and then, well, sector, thematic, and particularly on the theme we are discussing today, strategic autonomy. What I find really interesting is that we realize that Europe is no longer just there for diversification because you can't invest only in the United States. So, we are forced to diversify. It's no longer just a value zone, and it was seen a bit like that for growth investors, it was almost only luxury and then a few other sectors that were added. So, the zone in general has become interesting again. In any case, that's what I'm taking away from this. Thank you very much, Roxane, I learned a lot, and I hope our listeners will have learned a lot too, whether it's about the sectors, the indices to watch for 2026. Thank you very much. Great. Thank you very much, Xavier.