European investors are approaching the current crisis using analytical frameworks from previous crises. According to chief strategist Mabrouk Cherouane of Natixis Investment Managers, this reflex leads to misinterpretations that directly affect asset allocation.
The temptation is strong to compare the current situation with that of 2022, when the energy crisis following the war in Ukraine dominated markets. According to Mabrouk Cherouane, that comparison does not hold. “In 2022, there was simply no energy available. Now there is, but at a higher price,” he said last week during a media conference in Paris. That difference is crucial, in his view. Whereas the shock in 2022 was about volumes, with direct consequences for production and growth, the current situation involves a price shock. The economy is slowing but continues to function. The costs are absorbed somewhere along the chain: by consumers, companies, or governments.
This nuance fundamentally changes the reading of the cycle, the strategist argues. Natixis IM’s forecasts remain relatively moderate. Inflation in the eurozone is expected to reach around 2.9 percent by the end of the year, assuming an oil price of 80 dollar per barrel. Economic growth is expected to be only modestly affected, according to the asset manager.
Many other investors are factoring in stagflation. An exaggerated reflex, Cherouane believes. Stagflation implies a specific combination of recession, high inflation, and job losses. The economy is still far from that point, he said last week in Paris, before tensions between the US and Iran escalated further. According to him, the risk mainly depends on the duration of the energy shock. If tensions persist, second-round effects could gradually spread, for example through food prices and transportation costs.
Central banks’ toolkit
There is also an important difference compared to 2022 in the role of central banks. Many investors once again expect strong intervention, but the current shock is less suited to that. Interest rate hikes mainly work through demand, while inflation is now being driven by a supply shock via higher energy prices. Raising rates would primarily slow the economy without addressing the root cause of inflation. The European Central Bank is therefore likely to take a more cautious approach.
Behind this lies a structural vulnerability. Europe is highly dependent on energy imports and therefore more sensitive to external shocks. In times of tension, this increases volatility and makes European markets harder to interpret.
This is directly reflected in allocation choices. US markets appear more transparent to investors, partly due to their energy autonomy. Shocks are absorbed more effectively there, which explains the preference for US assets.
Technology offers relative stability
The focus is therefore shifting from geography to quality. Investors are primarily seeking predictability. According to Cherouane, US equities in particular remain capable of generating growth, even in a deteriorating environment. Technology stands out: the sector shows solid revenue growth and provides relative stability in portfolios.
A similar logic applies to bonds. Rather than speculating on hard-to-predict interest rate developments, the strategist observed that investors are shifting their focus toward higher-quality bonds.
Ultimately, it is not about an extreme macroeconomic scenario, but about how it is interpreted, Cherouane concluded. A misreading can lead to poor decisions and increased return risk. For European investors, the challenge lies less in predicting the next shock than in correctly understanding its nature. It is that interpretation that ultimately determines returns.