Skip to main content

Global uncertainty has less impact on European stocks

At lot has happened in the first few months of the year. In particular, the new US president and his actions have been making headlines daily.

Among other things, this has weakened faith in the American economy, leading many investors to opt for European rather than American investments. European and American stocks have started moving in different directions in recent months. This is due to the great uncertainty that has led many investors to turn away from American stocks and towards European ones instead. As a result, the value of European stocks has risen by 3.9 per cent since the start of the year, while prices on American stocks have fallen by 10.4 per cent over the same period as per 10 April 2025.

At Velliv, we have also adjusted our stock holdings to focus more on European stocks:

We began shifting our stock holdings as early as the end of 2024, when the outcome of the US presidential election became clear. We sold American stocks worth DKK 4 billion and instead bought stocks in smaller European companies that are typically not dependent on exports to the US. This is a development we expect will continue over the coming months

Thor Schultz Christensen

Deputy Chief Investment Officer at Velliv

Thor Schultz Christensen, viceinvesteringsdirektør, Velliv

Weakened confidence in the American economy

The changing messages from President Trump about tariffs on goods from countries such as the EU, China, Canada and Mexico make it difficult for American companies to plan investments, etc., causing them to hold back. And most recently, we saw Trump follow through on his threats to impose tariffs that can, at best, be descried as detrimental. The situation is causing turmoil worldwide, particularly undermining confidence in the American economy and creating increased uncertainty about how the US central bank (Fed) will set interest rates.

At present, most analysts expect two interest rate cuts of 0.25 percentage points each in 2025, but FED may be forced not to meet these expectations in order to reach their inflation target. A higher interest rate would have a negative impact on the American stock market.

”Our confidence in growth in the US is falling because we can see that American companies and consumers are not spending as much money. There will be more investment in Europe, which means that growth expectations in Europe are becoming brighter,” says Thor Schultz Christensen.

Interest rate developments in Europe

Inflation figures in Europe give reason to expect that monetary policy interest rates will fall over the course of 2025. However, it is clear that the situation in the US also has an impact on Europe in terms of increased uncertainty.

At the same time, the prospect of large fiscal easing in Germany in particular plays a role in the growth and interest rate outlook. The German Parliament have decided to set up a EUR 500 billion fund for investments in the country's defense and infrastructure over the next 12 years It will modernise Germany and at the same time stimulate growth. We expect these measures to boost the appeal of the European stock market, but also to put underlying upward pressure on especially long-term European interest rates. This became evident in early March, when Germany's financial policy plan became clear. As a result, both short- and especially long-term German interest rates took a jump up, and we've seen a spillover effect on Danish interest rates, which have also risen somewhat.

Expectations for 2025 – overall reason for optimism

Thor Schultz Christensen remains generally positive about the overall return on pension savings:

We currently expect a return of around 4-6 per cent for 2025 for a savings scheme with 15-20 years to retirement.

All things considered, we expect slightly falling interest rates. This is good for Danish homeowners and good for pension savings. Falling interest rates lead to price gains for bond holders in the short term. Overall, we expect a return on bonds in 2025 of around 3 per cent, which is slightly above our long-term expectations.

While we consider bonds to be relatively attractive as an investment, we believe that stocks are at the expensive end of the price scale. This is especially true for large US companies, which were the driving force behind the big increases in 2024. Nevertheless, we expect stock returns for 2025 to be close to the long-term average of 7 per cent, albeit with a slight downward trend. Market developments in 2025 has taken some of the top off the big companies. However, we still do not expect to be fully on target, which increases the risk that returns will fall below the long-term average.