Is it time to be bullish on European stocks?

Goldman Sachs trader and managing director Mark Wilson believes that it may be time to be bullish on European stocks.

So far this year, European stock markets have performed excellently, especially European bank stocks, which have shown a significant breakthrough after 8 months of consolidation. This phenomenon has caught Wilson's attention, and he wrote in his latest report: In the context of economic pressure and the new round of growth policies from the Trump administration, can Europe and the UK drive economic growth through substantial reforms to maintain competitiveness in the global economic competition?

Wilson poses and answers his own question: Increasing evidence suggests that it is possible. The reasons are as follows:

Shifting from regulatory risk to economic growth. Recently, the UK government announced a delay in the implementation of Basel III/IV (a series of international banking regulatory standards) until 2027, aligning with the policy adjustments of the US government. Additionally, UK Chancellor of the Exchequer Rachel Reeves also stated this week that regulators should shift from risk prevention to promoting economic growth.

Increasing defense spending to address the increasingly complex international situation. Although only Poland has set a target equivalent to Trump's proposed "5% of GDP," overall defense spending in the EU has risen by 50% from recent lows and is expected to continue to increase.

Accelerating consolidation in traditional resource industries. The London-listed multinational group Smiths Group reached a historic high on Friday due to demands from US activist shareholders for a more aggressive and proactive shareholder value creation strategy. Furthermore, reports indicate that two major mining giants, Glencore and Rio Tinto, have begun negotiations for the largest mining merger in the world. With the expiration of the negotiation ban between BHP and Anglo American, the wave of consolidation in the European resource industry is set to further develop.

Strong performance in the luxury goods sector. Benefiting from strong performance in the US market and unexpectedly stable sales trends in Asia, European luxury goods giant Richemont's stock price has reached an all-time high.

Advantages of index constituents becoming apparent. Recently, the largest constituent stock in European indices (GRANOLAS) has performed poorly, but its sales proportion in Europe is extremely low and is negatively correlated with bond yields. In the current economic and interest rate environment, this characteristic may become an advantage, helping to enhance the overall index performance.

In summary, Wilson believes that the European economy shows a good development outlook driven by multiple factors such as policy shifts, increased defense spending, active mergers in the resource industry, and strong performance in the luxury goods sector, which is expected to further drive up European stocks.

Risk warning and disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at their own risk