When the EU signed the dotted line and agreed to a 15% tariff rate with the US, it is fair to say they were not celebrating. However, there was a general view that the worst-case scenario had been averted, and Europe had at least established a measure of certainty.
Tariffs will continue to present an issue, particularly for Europe’s global traders and exporters, but the economic zone continues to look like an attractive place for investment in several ways.
From stimulus to proactive monetary easing, to a potential ceasefire between Ukraine and Russia, the picture appears positive in many areas. While there are still headwinds, there are also opportunities and room to grow.
Proactive Policy
Until recently, investors viewed Europe as an economic zone persisting through austerity, lacking stimulus and swamped in regulation. The area also lacked energy independence, which became an acute issue when Russia invaded Ukraine, and it also faced export pressures from China.
However, recently the EU has been able to refresh this image, thanks in part to its proactive policymaking.
After nearly a decade of austerity for most European countries, stimulus and spending have been injected. Three key areas that have received this support are:
- Green energy – recognising demand for sustainable investing and, more fundamentally, improving energy security
- Defence – aimed at supporting European manufacturers and contractors, reinvigorating domestic industry while strengthening national security
- AI and digital acceleration – focusing on semiconductors and addressing the regulatory delays that had previously caused Europe to fall behind.
This has been possible due to healthier debt levels, standing in stark contrast to the UK and the US. Furthermore, inflation has been less sticky in Europe, allowing the European Central Bank to implement quicker and deeper monetary easing.
Corporate policy has also kept pace. The conditions outlined, combined with attractive valuations, have drawn significant investor interest. European companies have taken additional steps to incentivise investors through increased shareholder-friendly practices, such as more share buybacks and stronger dividends.
We’re particularly encouraged by the fact that there is still significant room for growth. Discounted valuations, low interest rates and lower debt levels present decent future conditions for reinvestment and growth. Although there are still some regulatory hurdles to overcome, the EU still boasts these advantages missing in the UK and the US.
Opportunities for Smaller Companies
One negative issue facing the EU is the obstacle to growth presented by the US tariffs. Europe’s big international companies are considering their next moves. Some are likely to absorb the impact and relocate manufacturing, but those that can’t do that may have to be more creative.
However, looking beyond these global large-cap stocks, there are opportunities in European small- and mid-caps.
10th September 2025
Why Europe should be on your radar
Pete Wasko, Senior Portfolio Manager, Copia Capital
When the EU signed the dotted line and agreed to a 15% tariff rate with the US, it is fair to say they were not celebrating. However, there was a general view that the worst-case scenario had been averted, and Europe had at least established a measure of certainty.
Tariffs will continue to present an issue, particularly for Europe’s global traders and exporters, but the economic zone continues to look like an attractive place for investment in several ways.
From stimulus to proactive monetary easing, to a potential ceasefire between Ukraine and Russia, the picture appears positive in many areas. While there are still headwinds, there are also opportunities and room to grow.
Proactive Policy
Until recently, investors viewed Europe as an economic zone persisting through austerity, lacking stimulus and swamped in regulation. The area also lacked energy independence, which became an acute issue when Russia invaded Ukraine, and it also faced export pressures from China.
However, recently the EU has been able to refresh this image, thanks in part to its proactive policymaking.
After nearly a decade of austerity for most European countries, stimulus and spending have been injected. Three key areas that have received this support are:
This has been possible due to healthier debt levels, standing in stark contrast to the UK and the US. Furthermore, inflation has been less sticky in Europe, allowing the European Central Bank to implement quicker and deeper monetary easing.
Corporate policy has also kept pace. The conditions outlined, combined with attractive valuations, have drawn significant investor interest. European companies have taken additional steps to incentivise investors through increased shareholder-friendly practices, such as more share buybacks and stronger dividends.
We’re particularly encouraged by the fact that there is still significant room for growth. Discounted valuations, low interest rates and lower debt levels present decent future conditions for reinvestment and growth. Although there are still some regulatory hurdles to overcome, the EU still boasts these advantages missing in the UK and the US.
Opportunities for Smaller Companies
One negative issue facing the EU is the obstacle to growth presented by the US tariffs. Europe’s big international companies are considering their next moves. Some are likely to absorb the impact and relocate manufacturing, but those that can’t do that may have to be more creative.
However, looking beyond these global large-cap stocks, there are opportunities in European small- and mid-caps.
Europe’s current stimulus and low interest rates have benefited smaller companies, which are more oriented towards domestic markets and cyclical trading environments. Smaller companies have outperformed their tariff-burdened global powerhouse counterparts, not by huge magnitudes, but there is significant growth potential and are still attractively priced in terms of valuations.
A cease to hostilities between Ukraine and Russia
It is hard to say what a move towards peace will look like for Ukraine and Russia. While progress is unlikely to happen overnight, it still has the potential to represent a turning point for Europe.
An end to the conflict is unlikely to change the current commitment to increase defence spending. The Ukraine war, the US scaling back its role in global security and criticism from Trump regarding the EU’s contributions have all proved an uncomfortable incentive to drive change. Regardless of the conclusions, European economies now recognise that this remains a key priority.
A resolution of hostilities in Ukraine is expected to improve long-term conditions, with reduced sanctions on Russia and resulting lower cost energy helping to drive further growth. This may bring the EU closer to pre-war and pandemic conditions, while incorporating greater hedge and resilience based on lessons learned from the two global events. We might realistically expect European business sentiment to tick up.
Investor considerations
While there’s always a desire to maintain positive messaging during difficult times, it is important to be realistic about limitations. There will be headwinds: tariffs remain a challenge, China continues to pose an export threat, and red tape is still relatively pervasive. And as we’ve seen overnight following the Russian drone incursion in Poland, the situation in that part of the world could easily become more problematic and complicated.
However, the investment case for Europe remains compelling; the key is identifying the sectors and conditions that offer the greatest potential for growth in these volatile and fast-moving times.