Top European investment institutions are preparing for the possibility of Donald Trump winning the 2024 U.S. presidential election. During Trump’s previous tenure, European stock markets underperformed compared to the U.S. markets, marking the poorest performance in the past eight U.S. administrations. This trend guide from European institutions regarding U.S. presidential elections provides crucial insights, particularly for export-dependent Asian stock markets.
The “Trump trade” is gaining traction as betting predictions indicate a more than 60% chance of Trump’s re-election, with Trump overtaking Harris in recent polls. Wall Street traders anticipate that Trump’s potential re-election would result in highly relaxed fiscal policies and increased trade protectionism, bolstering the U.S. dollar against multiple currencies and significantly raising U.S. Treasury yields.
Betting markets globally show Trump leading over Kamala Harris, although battleground states remain fiercely contested. A Trump victory could lead to trade protectionism policies severely impacting export-dependent European industries, particularly those heavily reliant on the U.S., which remains the EU’s largest trade partner with a bilateral trade value of $952 billion in 2023.
European investors are moving away from stocks closely tied to Democratic policies, with UBS Group AG reporting a 10% drop in European companies benefiting from the U.S. Inflation Reduction Act (IRA) and renewable energy stocks. Companies like Vestas Wind Systems, Pernod Ricard, and Volkswagen are included in this group.
Conversely, stocks expected to benefit from a Republican government, such as European defense companies Rheinmetall and Thales Group, are showing growth. Such companies could further benefit if Trump wins, given his stance on reducing EU defense participation and promoting American manufacturing.
Trade tensions under “Trump Economics”—raising import tariffs and cutting domestic company taxes—pose risks to European companies like Mercedes-Benz, Porsche, and BMW, which face substantial challenges from proposed tariffs on Chinese imports and U.S. tax cuts favoring domestic manufacturing. If Harris wins, it could relieve tariff risk premiums for these companies, potentially offering a market bounce back.
European automakers like BMW and Mercedes-Benz are trying to balance between U.S. and EU interests, while Volkswagen and Porsche face greater risks due to manufacturing locations. Likewise, Trump’s policies could threaten European EV producers as potential IRA tax credit changes could stunt industry growth.
The renewable energy sector could also face disruptions, with offshore wind projects particularly at risk under Trump’s administration. Companies like Denmark’s Orsted A/S and Portugal’s EDP Renovaveis Sociedad Anonima could experience negative market sentiments.
On the flip side, companies with exposure to fossil fuels like BP, TotalEnergies, and Repsol may benefit from Trump’s inflationary fiscal policies. Defense stocks such as BAE Systems and European firms could see increased demand if North Atlantic Treaty Organization (NATO) countries are pressed for higher defense spending under Trump’s leadership.
Despite potential market volatility, some investment firms urge focus on long-term business cycles and strategic growth rather than election outcomes. The Royal Bank of Canada emphasizes the importance of long-term factors over short-term political changes.
