U.S. uncertainty is handing Europe a huge opportunity
Europe is being urged to capitalize on the volatility of the Trump administration, as shifts in capital and private market flows suggest U.S. exceptionalism is waning and losing out to a resurgent Europe.
The numbers tell part of the story, with Europe's Stoxx 600 up over 8% compared to a 5% jump for the S&P 500 since Nov. 1, 2024, just days ahead of the U.S. election.
Bank of America said in a report dated June 5 that U.S. equities had seen outflows of $7.5 billion over the previous three weeks, while European stocks benefited from inflows of $2.6 billion over the same period. Earlier this year, meanwhile, data from Morningstar showed that investors withdrew 2.8 billion euros ($3.2 billion) from U.S. equity ETFs in the month to the middle of March, while shifting 14.6 billion euros into European ETFs.
Goldman Sachs International Co-CEO Anthony Gutman told CNBC that the convergence in U.S. and European growth rates came about quickly this year and was a big factor prompting investors to shift money toward Europe.
"In January, sentiment felt very strong in the U.S., it felt somewhat more muted in Europe. You roll the clock forward and now the picture has changed fairly dramatically, that's to the benefit of Europe in many cases. Europe is getting more capital inflows and there is more optimism in Europe," Gutman told CNBC's Annette Weisbach Wednesday on the sidelines of the Goldman Sachs European Financials Conference in Berlin.
Meanwhile, in private markets, talk of the breakdown of U.S. exceptionalism dominated the Super Return forum in Berlin last week. Carlyle Group's Managing Director Mark Jenkins told CNBC that, "in Europe, we've seen a lot of great opportunity and think we can pick up greater returns here relative to the risk you're taking in the U.S."
This sentiment was echoed by private equity giant Permira, which holds private equity funds and credit vehicles representing around 60 billion euros worth of capital under management.
"If you look at Europe at the moment, firstly, capital is cheaper, if you look at the trend of where euro rates are going versus dollar rates are going, you can fund and finance things cheaper here. Secondly, valuations are cheaper, you can buy great companies for less," Permira Executive Chairman Kurt Björklund told CNBC's "Squawk Box Europe" on Tuesday.
"Thirdly the innovation cycle is growing exponentially in Europe … there is an enormous number of highly innovative companies that are growing in a disruptive and global way," he added.
All eyes are now on the potential for an EU-U.S. trade deal — which is proving trickier to pin down than with some other countries, including the U.K. Referencing the complexity of the behemoth that is the European Union, Siemens Energy Chairman Joe Kaeser told CNBC that the EU is "politically not ready to strike these types of deals."
The White House hinted on Wednesday that a July 9 deadline for a deal may be movable, however, with Treasury Secretary Scott Bessent saying: "It is highly likely that for those countries that are negotiating — or trading blocs, in the case of the EU — who are negotiating in good faith, we will roll the date forward to continue the good faith negotiation."
French President Emmanuel Macron also struck an optimistic tone, telling CNBC's Karen Tso on Wednesday: "I'm sure that we will find, at the end of the day, a good solution."
Unicredit CEO Andrea Orcel stressed that the opportunity for Europe's continued revival lies in its own hands, however.
He explained that the 27-member European Union could galvanize amid the fracturing of Europe's relationship with the U.S., but warned that investors can also be fickle.
The expectation is that "there will be convergence, there will be a banking union, there will be a capital markets union. There will be a lot of spend on infrastructure, on defense... That's exciting for the market, therefore money flowing in," Orcel told CNBC Wednesday. "But if, little by little, investors realize that this is lip service, but it doesn't really happen. Money will flow back in a nanosecond, and you will see [that] very quickly."
Europe is faced with a "phenomenal opportunity," he added. "We have every reason to be ... on par with the U.S., but it's our fault if we don't do it."
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