Donald Trump’s latest tariff threats this week send ripples through global markets, but investors appear largely unshaken. Instead, asset managers and strategists are advocating a focus on quality stocks and diversified portfolios, with a particular focus on European blue-chip stocks known as ‘Granolas’ to weather potential disruptions.
Prof. Dr. Jan Viebig, CIO at Oddo BHF, stresses the importance of resilience amid policy uncertainty. “Stick with quality,” he told Investment Officer. “In the long term, a strong and profitable business model is the best insurance against political whims.” The unpredictable nature of trade policy, he argues, makes it essential for investors to focus on businesses with strong profitability and adaptability.
Despite these trade uncertainties, European markets continue to show strength. Germany’s DAX index has gained 7.4 percent so far this year, outperforming its peers. Investors appear more focused on corporate earnings and the European Central Bank’s accommodative monetary policy than on potential disruptions from US tariffs.
Political concessions
Although most of the tariffs dust has now settled, it is clear that the impact of Trump’s trade policies will vary across regions, with Canada, Mexico, and Europe potentially avoiding the worst repercussions if negotiations focus on political concessions rather than blanket tariff measures. However, a broad-based tariff strategy could still force investors to re-evaluate their regional risk exposure.
Damian McIntyre, head of multi-asset solutions at Federated Hermes, believes diversification remains key in the face of geopolitical and macroeconomic risks. “Whether it is tariffs and geopolitical tensions, or AI and earnings, there are many risks facing investors in today’s market. We believe that investing in a broad range of globally diversified assets is one way that investors can maintain strong, resilient portfolios.”
Supply chains, already reshaped by the pandemic, could see further strategic adjustments in response to new tariffs. “This week’s tariffs will only reinforce this thinking,” McIntyre said. “We think that companies will look to create and maintain a robust global supply chain while focusing on a multi-polar regional framework.”
The market rally paused briefly on Monday as Trump’s tariff threats triggered the steepest daily drop in the DAX this year as his proposed levies on key trading partners, including the EU, sparked renewed concerns over trade frictions.
Germany’s exposure limited
However, analysts argue that Germany’s exposure to the US remains limited. With only 10 percent of its exports bound for the US, the direct impact should be contained, said Carsten Brzeski, global head of macro at ING Research. Major companies like Volkswagen already have substantial US production footprints, mitigating the immediate consequences of trade barriers.
Goldman Sachs, however, warned that new tariffs could still weigh on Germany’s fragile economy, potentially shaving 0.6 to 1.2 percentage points off GDP. Yet, despite these concerns, investor sentiment remains broadly positive. Deutsche Bank forecasts an 11 percent earnings rebound for DAX-listed companies in 2025, following a 9 percent decline last year. Industrial firms, among the hardest hit, are expected to recover strongly, with projected growth of up to 20 percent.
Europe’s answer to the Magnificent 7
Beyond Germany, optimism is spreading across European equities, particularly in blue-chip stocks with strong earnings potential. The Stoxx Europe 600 index has risen 5 percent year-to-date, outperforming the US S&P 500’s 2.9 percent gain. At the heart of this rally are the so-called ‘Granolas’ stocks—Europe’s answer to the Magnificent 7.
‘Granolas’ stocks—comprised of major firms like GSK, Roche, AstraZeneca, ASML, SAP, LVMH, and L’Oréal—are increasingly seen as a compelling alternative to high-growth US tech giants. Their strong performance in January outpaced that of their American counterparts, reinforcing their appeal to investors seeking stable, resilient growth.
“Investors are reassessing their US tech exposure,” said Oskar Bernhardtsen, strategist at Saxo Bank. With Stoxx 600 companies seeing upward earnings revisions, the attractiveness of European stocks is growing. While last year some ‘Granolas’ companies missed elevated expectations, their valuations have now adjusted, making them more appealing.
Half the valuation of American rivals
Even with the recent market rally, European stocks remain relatively cheap compared to US equities. ‘Granolas’ stocks currently trade at 21.3 times projected 2025 earnings—nearly half the valuation of their American rivals. With expected earnings per share growth of 30.2 percent, their investment case remains strong.
Meanwhile, the broader outlook for European equities continues to improve. ING investment strategist Simon Wiersma notes that analysts are revising their earnings growth expectations for Stoxx Europe 600 stocks upwards.
“That is good news and reinforces our view that much of the negative sentiment had already been priced into European equities,” Wiersma said. ING recently shifted its stance, downgrading US equities from overweight to neutral while increasing its exposure to European stocks.