Fundamentals: The True Long-Term Driver of Value

The global macroeconomic backdrop today appears complex but not without some positive signals. On one hand, there are still signs of deceleration, mainly linked to uncertainty surrounding US trade policy. A symbolic moment was Liberation Day, when the announcement of new tariffs triggered a negative market reaction and fuelled widespread unease. The tariffs introduced a difficult-to-quantify variable that temporarily undermined investor confidence.

However, as the market has gradually digested these measures, the true extent of their impact has become clearer. Many companies have shown a surprising ability to absorb the negative effects, passing on only part of the cost increases to consumers through limited, still-sustainable price hikes. This has helped ease concerns—especially for European exporters and for US consumer purchasing power.

Markets are showing strong resilience. Recent economic data continue to indicate robust dynamics. Earnings season has provided reassurance: in the US, Q1 earnings rose by 12%, supporting a rebound in equity indices and pushing the VIX back to more moderate levels. In Europe, earnings excluding the energy sector rose by 2%—a sign that fuels cautious optimism for the coming quarters.

Trade talks between Washington and Beijing have resumed, while long-term yields have stabilized, easing pressure on the sustainability of US fiscal policy.

Currency dynamics remain central in the current environment. In recent months, the US dollar has experienced significant volatility, and the Trump administration appears to be leaning toward competitive devaluation to boost exports. In such a scenario, a new phase of dollar weakening is likely, making it essential to analyse FX market direction carefully over the medium term.

For European companies without a US production base, a weaker dollar can be a significant headwind: revenues in local currency shrink when converted back to euros, compressing margins. Conversely, US companies—especially those with a strong export orientation—could benefit from a competitive edge both in terms of volumes and profitability.

FX risk should not be underestimated. Its impact largely depends on the geographical makeup of the portfolio and the operational structure of the invested companies. It is crucial to determine whether a company has a natural hedge—i.e., whether it generates both revenues and costs in the same currency. In the absence of this symmetry, exchange rate fluctuations can have tangible effects on earnings and cash flows.

That said, it’s important to maintain a long-term perspective. Historically, FX has proved to be a variable that can both amplify and dampen performance, but it has rarely been structurally decisive. For this reason, FX risk is certainly something to monitor—but it should never outweigh fundamental company analysis, which remains the true long-term driver of value.

We believe the current environment may persist for several reasons:

1. Policy incentives – Policymakers are strongly motivated to reach constructive outcomes in trade negotiations; nobody stands to gain from a recession, whether in the US or elsewhere.
2. Market adaptation – Markets are gradually digesting tariff-related uncertainty, starting to view it not as a temporary shock but as a structural component of the global economic landscape.
3. Delayed stimulus impact – Many recently implemented stimulus measures—such as the so-called “German bazooka”—have yet to fully take effect.
4. Resilient fundamentals – Despite the surrounding noise, there have been no concrete signs of weakening in consumption or investment, indicating that business confidence remains intact.
5. Market influence on policy – Perhaps more subtly but decisively, markets themselves have become a shaping force in economic policy decisions. We’ve seen how governments and central banks are now quicker to act to prevent excessive dislocations, signalling heightened sensitivity to financial stability.

In 2025, US policy uncertainty has increased the risk premium demanded by investors, likely leading to a compression in valuation multiples. This could redirect capital flows toward regions perceived as more stable or undervalued—such as Europe, which continues to represent a “value” market, with lower multiples compared to the US, despite the latter’s still strong growth rates.

A convergence of potentially favourable factors for Europe is now underway: stronger growth appetite, capital inflows from the US, and the prospect that expansionary fiscal policies—such as the German stimulus package—could finally drive a real acceleration in the European economy.

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