Yahoo Finance

This shift in pa in sentiment has happened very quickly. What shifted the US exceptionalism narrative that has existed for over a decade in your view?

Yeah, thank you for having me and I think, you know, really the big catalyst uh which has caused this shift, you know, out of the US and into international stocks is the way that governments are reacting to Trump's policies. I think the one thing that uh we underestimated um is how governments were going to respond forcefully with fiscal policy. Now, we've seen that in China, uh we have the NPC meeting uh where they increased their budget deficit target. We're now seeing that in Europe as well, where Germany and the new coalition government are announcing their plans to do almost uh one trillion euros of fiscal spending split between defense spending and infrastructure spending and honestly, this offsets a lot of the tariff headwinds that we thought would be materializing for these two markets and really means that actually the growth backdrop may not be as bad as we initially thought.

One of the things I'm curious about especially off the back of the announcement from Trump about an hour ago on truth social that he was increasing stealing aluminum tariffs and tariffs that would hurt Canada in particular is the impact of the tit for tat and the trade war that is developing. Are you concerned about reciprocal tariffs leading to less resilience for that basket of European stocks?

100%. I mean that is the the big downside risk to our view is that essentially this tip attack nature on tariffs uh causes a much deeper, you know, economic and and global slowdown and in that view there's probably very few places within the equity space uh both within the US and internationally uh which would be immune to that. You would hope that um you know, that essentially leaders would be aware of that um and acknowledge the fact that the tip attack nature uh could cause more downside risks and again, focusing like much like you know, China has done instead of necessarily going tip for tat, you know, responding a little bit but then actually focusing on what domestic policies they can do to offset some of the headwinds that they're going to be seeing from from tariffs.

So is Europe still in buying opportunity in your view?

Definitely. So I think you really got to you got to break down uh Europe's outperformance uh year to date into two components. Really from January to February, what we saw was Europe was outperforming uh because the Europe was weakening. Uh we went all the way from 112 down to 103. Um this was a tactical uh you know, uh momentum uh for Europe but now we have something structural, which is essentially that Germany is coming out and saying here is you know, a sizable amount of fiscal stimulus which we're going to you know, deploy over the next 10 years. that for me is a game changer. That is a seismic shift in Europe's economy and that's why I think you have a bit more longevity now in in the European equity market trade. Uh the final thing I just highlight is that obviously a lot of people are very concerned about the equity market exposure to tariffs particularly in Europe. A few things to know, 25% of revenue in Europe comes from the US, but only 10% of that is what I would say is tarifble, right? The rest of it is services, the rest of it comes from companies that produce and sell in the US. So actually I think European equity market exposure to tariffs is probably slightly less than what we think and is very sector specific.