As the US equity landscape – driven by tariff tensions, political uncertainty and concerns over stretched valuations – seems to grow more challenging by the day, Europe’s deep-rooted focus on corporate governance and strong trade frameworks can offer a compelling alternative.
With substantial fiscal investment on the horizon and growing recognition of the strength and resilience of European companies, the continent is beginning to reassert itself once more as an attractive destination for long-term capital.
But while the region presents undeniable strengths, investment in European equities is not without its own challenges. While on one hand Germany is preparing to unleash a €500 billion spend on infrastructure, a move that could reshape the country’s industrial base and boost long-term economic growth, in France, President Macron’s inability to secure a stable government has stalled much-needed fiscal reform. Overlay this with the ongoing war in Ukraine and uncertainty around US tariffs, particularly Trump’s sector-specific threats to European industries like pharmaceuticals, and it’s clear that Europe’s own trajectory won’t be entirely turbulence- free.
But volatility presents opportunity for discerning investors – and it’s precisely in these moments that disciplined, high-conviction active management can prove its worth. In volatile markets, passive strategies can miss the nuance – the mispriced risks, the overlooked opportunities and the companies steadily building long-term value.
When instability creates opportunity
For value-focused managers in particular, periods of economic or political instability can reveal attractive investment prospects, especially when a company’s market price diverges from its intrinsic worth.
Take the volatility in France as an example, where the lack of a stable government is severely shaking investor confidence. The seventh Prime Minister of Macron’s presidency, Sébastien Lecornu, resigned on the 6 October after less than one month in the role, causing the CAC 40 to sell off again1. In our view, France is becoming increasingly comparable to the Italy of old, with mounting concerns over its inability to control its public finances and numerous collapsing governments pushing the yield on France’s 10-year government bond yield higher. Indeed, the yield on French 10-year bonds rose above Italy’s in early October2.
Despite this, many French companies remain fundamentally sound. Importantly, a significant number of French companies are globally diversified, generating revenues beyond their domestic borders. With companies’ valuations being dragged down by association with France’s political unrest, this has created openings for selective, long-term investors.
It is also important to consider the pricing dispersion between growth and value. As we have moved through 2025, value continues to trade at a significant discount to growth by historical standards. Despite the strong performance of tech-led growth stocks over the past decade, many value sectors — particularly financials, healthcare, and industrials — are still priced below their long-term averages, offering compelling opportunities for investors seeking resilience and income.
While falling inflation and improving real household incomes may suggest a supportive backdrop for growth stocks, incoming fiscal spend across Europe could push interest rates higher – creating a tailwind for banks. With interest rates stabilising and inflationary pressures easing, the macro environment is increasingly supportive of value strategies.
Finally, it is worth pointing to the historical performance of value investing. In a market currently shaped by shifting sentiments, value investing remains deeply rooted on company fundamentals – in assessing future cashflows, balance sheet strength and margin resilience. In line with this approach, compared to growth strategies, value strategies can offer more stable returns over time, as they typically focus on companies with the potential to generate reliable future cash flows for shareholders rather than relying on momentum, which can introduce greater volatility.
Opportunity is hiding in plain sight
Against a turbulent backdrop, we believe small and mid-cap (SMID) cyclicals provide particularly compelling investment opportunities, with a number of these European companies attractively positioned ahead of anticipated fiscal investment in Germany. While at EdenTree we do not invest directly in defence due to its sustainability criteria, the broader industrial infrastructure required to support such spending – factories, cables and cooling systems, for example – could benefit significantly. These areas remain underappreciated by the market but reveal promising investment prospects for disciplined value investors such as ourselves.
We believe it is worth paying attention to cyclical SMID opportunities in challenged sectors, as the dislocation between current market pricing and these companies’ intrinsic value could present an interesting entry point when the cycle turns.
Is Europe ready to rebound?
Of course, a degree of caution remains warranted. While equity markets have rebounded strongly since the initial shock of Trump’s tariff announcements, the full economic impact of these measures is still unfolding.
As we move into the fourth quarter, further volatility in Europe is possible. However, for contrarian, value-focused investors in particular, such periods of uncertainty can create fertile ground for long-term opportunities.
By Chris Hiorns, manager of the EdenTree European Equity Fund
