Can European Stocks Overcome Fallout from “America First” Agenda?

21 January 2025
4 min read
A kayaker in a red kayak deftly navigates ice floes.
Thorsten Winkelmann| Chief Investment Officer—European and Global Growth
Marcus Morris-Eyton| Portfolio Manager—Europe and Global Growth

European equity markets may look vulnerable to fallout from new US policies. But some companies offer investors reasons to cheer.

European companies are facing a raft of new challenges from the policy direction of the incoming Trump administration. But we think select European companies with the right business attributes could do well during the new regime and offer underappreciated return potential.

US President Donald Trump has vowed to launch an array of policies that could make life difficult for companies around the world. It's too soon to say whether some of the more aggressive trade policies that have been announced are a bargaining tactic or an actual policy goal. In his first round of executive orders immediately after taking office, Trump didn’t single out Europe for new tariffs. However, he threatened to impose tariffs if the European Union didn’t buy more US oil and gas. Still, European companies are aware that Trump’s policy agenda could make it much harder to compete with US peers.

For equity investors in Europe, the challenge is to identify companies that will be able to compete effectively despite the higher hurdles. For example, companies with strong pricing power and local-for-local operations will be much less vulnerable to potential tariffs. We think that investors, by using clear criteria for finding high-quality growth businesses, can identify companies that are more likely to defy pessimism over Europe’s plight and to overcome policy-driven obstacles.

Tariffs and Trade: Not All Companies Are Equally Exposed

Even before taking office, Trump made clear that, in addition to China, Europe is one of his tariff targets. Time will tell whether the tough talk on trade materializes. Yet investors must prepare for the possibility that Trump will follow through and that a unified Republican government will promote reshoring of US manufacturing.

Where does that leave European companies? It depends. As we see it, European companies that have already optimized their supply chains in response to the shocks experienced during the COVID-19 pandemic will be better placed to continue delivering efficiencies and earnings growth. In some cases, companies with high-quality businesses that are strong players in their industries will find it easier to optimize their supply chains to cope with the cost burdens of tariffs.

Adidas is a good example. In recent years, the German-based sportswear company has shifted some of its sourcing away from China to reduce tariff risk and supply chain disruptions. With a globally trusted brand and a high-quality business model, Adidas has been able to forge effective relationships with new suppliers in Asia relatively quickly, which should help the company avoid a penalty of new US tariffs on China or Europe, which would increase the cost of its products to US consumers.

Some European companies operate in the US and may even benefit from US tariffs, particularly in the industrials sector. For instance, Diploma, a UK-based diversified industrial company, generates about half its revenue in the US, with 75% of its inputs locally sourced. So tariffs shouldn’t dent its US-based income, while rivals who source from China will be far more vulnerable. Similarly, Beijer Ref, an industrial manufacturer of heating and cooling systems, is enjoying strong growth in the US, where its business has locally based suppliers, so tariffs are not a threat.

Quality Businesses Can Cope Better

While tariffs can dramatically raise costs, which are often passed on to customers, not every European company will instantly suffer a loss of demand. The effects will depend on many factors, including a company’s competitive positioning and pricing power.

Companies that have dominant positions in niche markets might be able to withstand a degree of tariffs. For example, Coloplast of Denmark manufactures medical products, such as catheters and colostomy bags, with an established customer base that might be willing to pay more for these specialized products rather than switch brands.

What About the European Economy?

Of course, the European economy may face headwinds from new US policies, which will aim to promote US growth. Yet for some companies, a European domicile doesn’t necessarily mean higher exposure to regional risks.

The industrial sector is a case in point. Consider Atlas Copco, a Swedish multinational group that provides tools, equipment and services for industries including manufacturing, mining and construction companies. Since more than 70% of the company’s revenue comes from outside Europe, Atlas Copco isn’t overly exposed to regional economic challenges. Its decentralized structure—with more than 450 service centers in over 180 countries—means the company has many levers to pull to counter adverse conditions in a particular market. Its strong track record of consistent profitability provides another buffer against potential economic weakness.

Earnings Resilience Should Be Rewarded

Companies like these offer investors sources of earnings growth that aren’t tied to macro trends. Our research shows that consistent earnings growth is the most reliable driver of long-term equity returns across most sectors in Europe (Display).

Earnings Growth Tends to Be a Strong Indicator of Equity Return Potential
Bar chart shows annualized 10-year earnings growth and returns for MSCI Europe sectors.

Past performance and current analysis do not guarantee future results.
EPS: earnings per share.
As of December 31, 2024
Source: FactSet, MSCI and AllianceBernstein (AB)

Of course, Europe is facing substantial challenges during this period of political change from abroad—alongside political instability from within. But the line from politics to economic growth and business results is rarely straight. We believe there will be a wide range of outcomes under Trump 2.0, with different winners and losers among companies in the US and around the world.

For investors in European equities, the playbook for finding resilient companies shouldn’t change, even as the market, macro and policy variables are shaken up. Stay disciplined in the search for companies with durable business models while staying tuned to the ripple effects of policy changes. European companies that rise above the policy tremors ahead could offer underappreciated return potential in what is sure to be a volatile period.

The views expressed herein do not constitute research, investment advice or trade recommendations, and do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.

References to specific securities discussed are for illustrative purposes only and are not to be considered recommendations by AllianceBernstein L.P.

MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein.

The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.


About the Authors

Thorsten Winkelmann is Chief Investment Officer of European and Global Growth. Prior to joining AB in 2024, he spent more than 20 years at Allianz Global Investors, where he was CIO of the Global Growth team and a portfolio manager for the Global Equity Growth and Europe Equity Growth strategies. Before that, Winkelmann was a portfolio manager within the Allianz Global Investors European Equity Core and Multi-Asset teams. He holds an MA in economics from the University of Bonn. Location: Frankfurt

Marcus Morris-Eyton is a Portfolio Manager for Europe and Global Growth. Prior to joining AB in 2024, he was a portfolio manager at Allianz Global Investors, which he joined in 2011. Morris-Eyton also worked as a discretionary sales manager at Allianz Global Investors in London, and in equity research at Credit Suisse. He was named one of the Top 40 Under 40 Rising Stars in Asset Management by Financial News in 2015. Morris-Eyton holds a BA with first class honours in English and philosophy from the University of Leeds. He is a CFA charterholder. Location: London