Economy

Investment boom in Europe: traders choose European assets over American ones

European markets are experiencing an investment boom amid the region’s growing economic independence from the United States. Investors are reorienting from American assets to European ones, which is called MEGA-trades (Make Europe Great Again), as opposed to American MAGA-trades. This was reported by Reuters, according to Komersant ukrainskyi.

The defense sector remains one of the most attractive areas for investment after Russia’s full-scale invasion of Ukraine. And the statements of the US representatives at the Munich conference that Europe is now responsible for its own security have only given the growth of the defense industry a second wind. Shares of European aerospace and defense companies have risen by 33% since the beginning of the year, and their valuation ratios have outperformed their American competitors, the publication writes.

Rheinmetall is more expensive than Ferrari

Particularly impressive is the case of the German tank manufacturer Rheinmetall, which in March temporarily became more expensive than Ferrari. Rheinmetall shares were trading at a ratio of 44 to expected earnings, which underscores investors’ willingness to pay a premium for access to the long-term growth trend of the defense sector.

This unprecedented case demonstrates a dramatic shift in investor sentiment, from a preference for luxury brands and tech companies to a massive investment in defense companies, expecting them to grow steadily over the coming years.

Arms on credit is a positive for investors

Brussels plans to mobilize up to 800 billion euros for rearmament, and Germany has announced a significant increase in military spending. The average annual profit growth of defense companies by 2028 should range from 8% for BAE to 32% for Rheinmetall, according to Citi.

In addition to weapons, investors are paying attention to related sectors such as logistics, communications, and infrastructure. An illustrative example is the rapid growth of shares of the French-British satellite operator Eutelsat by 260% after reports of a possible replacement of Elon Musk ‘s Starlink in providing Internet access to Ukraine.

According to the article, the bond sector is seeing an expansion in the pool of AAA-rated securities, which supports the euro’s status as a reserve currency. Germany plans to issue an additional trillion euros worth of debt to finance infrastructure and defense projects.

The EU also plans to jointly borrow up to €150 billion to support increased defense spending by member states (SAFE program), which indicates that the bloc is transforming into a more permanent borrower.

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Banking sector and stock exchanges

European banks are showing their best quarterly performance since 2020, up 26% since the beginning of the year. According to Berenberg, the German economy should grow by about 1.4% in 2026 and 2027 after almost four years of stagnation.

Spanish and Italian stock indices are much cheaper than in mainland Europe, which creates potential for growth, according to the authors of the article. Southern European stocks are also less exposed to U.S. tariffs than German or French stocks, and have a large exposure to the banking sector.

Energy

Europe’s drive for energy independence, launched in 2022, continues, which benefits renewable energy companies. The European Commission presented an Action Plan to speed up permitting for renewable energy projects and increase state aid to clean industries.

Solar generation provided 11% of the EU’s electricity in 2024, up from 9.3% in 2023, outpacing coal. Shares of European utilities Iberdola, Endesa, and Enel have increased by 7-16% since the beginning of the year.

Summary

Thus, the arms drive is expected to give a boost to both the common European economy and individual stagnant national economies of the EU. Coupled with Trump’s unpredictable economic policy, the EU has a good chance of attracting a significant portion of investors’ funds that were previously deposited in the United States. And Europe is already doing so.

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