The warning that the future of the European Union is at stake, as expressed in Mario Draghi’s report on Monday, could signal a shift in sentiment and perception among policymakers and investors. This is the view of Robeco, outlined in their outlook for the 2025-2029 period.
During Wednesday’s presentation of the outlook, Robeco strategists Peter van der Welle and Laurens Swinkels, head of the firm’s quantitative strategies team, reflected on Draghi’s warning. The former European Central Bank chief stressed that European economic policy requires a significant overhaul, as the Union’s very existence is at risk.
Robeco’s experts suggest Draghi’s report could be a major turning point in sentiment and perception, much like his famous “whatever it takes” speech in 2012. “It’s clear there’s an urgent need for concrete plans to enhance Europe’s competitiveness,” the strategists stated. “We are facing an energy crisis, competition from China, and former trading partners that disregard international laws. This report could be a gamechanger for the eurozone.”
European tech needs more leeway
Robeco’s experts pointed out that U.S. growth is currently driven by the dominance of its tech sector and a strong focus on supply chains. “That’s why American growth outpaces Europe’s,” said Van der Welle. “Less stringent regulation, as Draghi proposes, could benefit small and medium-sized European tech companies, potentially driving production growth in the eurozone. Europe’s tech sector, particularly smaller and medium-sized firms, must spearhead the region’s economic catch-up.”
Van der Welle also referred to the blocked 2019 merger between Alstom and Siemens by the European Commission. “Allowing more room for deals like this could dispel the dark cloud hanging over the European economy.”
Even if Draghi’s urgent appeal does not prompt immediate action on the supply side, Robeco expects European consumers to ramp up spending by 2025. “Leading indicators show consumer confidence is rising, but we’re not there yet.” A ceasefire between Ukraine and Russia could also boost sentiment, Robeco believes.
Greater focus on sustainability needed
Robeco recognises that Europe is making progress in reducing its energy dependence on other countries, but significant reliance on the United States remains. “Under Trump, there would likely be more willingness to export energy, providing more space for U.S. shale gas producers. Europe’s vulnerability persists, so it’s increasingly important for the region to focus on renewable energy and make electric vehicles more affordable. This would lower consumer costs and improve disposable income,” Van der Welle noted.
Highest returns in emerging markets
Investors seeking the highest returns in the coming years should look to emerging market equities, Robeco suggests. The outlook for developed market equities is also improving.
The asset manager anticipates an average annual return of 7.25 percent for emerging market equities over the coming years, consistent with earlier forecasts. Robeco has also grown more optimistic about developed market equities, now targeting a 6.5 percent annual return, up from the previous estimate of 5.75 percent.
“In our base case, we expect a favourable climate for global equity investors, despite high valuations in the United States,” said Swinkels. He remains cautious about U.S. equity returns, which are likely to be slightly lower than the 6% yields on U.S. Treasury bonds in the coming years.
“We’re not expecting a crash, but the downside risks are higher in these bubble-like times,” Van der Welle added. He highlighted that the global economy remains vulnerable to supply chain shocks.
“Nevertheless, future equity returns will be supported by solid global economic growth, with the U.S. economy expected to grow at an average of 2.4 percent per year. In the UK and eurozone, annual growth is forecast at around 2.0 percent and 1.7 percent, respectively. This suggests Europe is gradually closing the gap with U.S. growth,” Swinkels said.
China cheap, India expensive
“Valuations in emerging markets are significantly lower than in developed markets, but macroeconomic developments appear less favourable.”
Swinkels also noted “huge” differences in valuations between countries, with India appearing “very expensive,” at levels comparable to the U.S., while China looks “very cheap.” “Allocating capital to specific countries could prove a smart strategy,” he concluded.