As promised, let us now turn to how investors can profit from the European Union’s hesitant steps toward a more integrated market economy. A more sophisticated term for this is value creation.
At this point, I should note that while I appreciate the marketing effort behind the phrase, I cannot help but smile at how effectively it obscures the real motivation. In his autobiography, Tony Curtis recounts one of his earliest roles: a porter expecting a tip from the protagonist and refusing to leave until he received it. Despite the role’s brevity, the young actor found it incredibly stressful. An older colleague eventually offered him a simple piece of advice: your character came for the money; that’s what the audience needs to see.
So let us be honest with one another: we are here for the money.
When considering investment instruments connected to European integration, I believe they can be divided into two categories. First, there are the EU’s jointly issued bonds, which have been available for some time now. Second, there are the effects that regulatory changes have on European companies, which naturally influence the value of their shares.
Let us begin with bonds, as they are a much simpler, more transparent, easily monetizable, and reliable form of investment. The classic rule of thumb in portfolio construction recommends a 60/40 allocation: 60% of invested capital in equities and 40% in bonds. According to the theory, this provides a balanced and diversified portfolio that should outperform the bond market over the long term thanks to the equity component.
It is difficult to argue with this logic. Bonds are conservative, risk-averse instruments that generate predictable income. This is particularly true for jointly issued EU bonds. Their structure spreads default risk across the member states. It was not so long ago that, following the 2008 financial crisis, Greece found itself on the brink of default and unable to meet its obligations. At the time, alongside international institutions, German taxpayers’ money was needed to keep the country afloat. What was then an ad hoc solution has now become institutionalized through joint debt issuance.
For these reasons, their place in an investment portfolio is difficult to challenge.
However, this brings us to the second opportunity: European equities.
Why bother with stocks when bonds can provide predictable returns until maturity? When purchasing a bond, we accept a predefined set of rules—whether that means a fixed annual interest rate or a formula based on a benchmark plus a specified premium. Yet since COVID, inflation has returned to our lives, compounded by a series of geopolitical crises.
Consider the Hungarian example, where inflation peaked at around 25 percent. If you had purchased a government bond in 2019 paying slightly above 6 percent—which seemed highly attractive at a time when inflation was virtually nonexistent—you would quickly discover that such a favorable-looking investment merely limited your real loss to roughly 19 percent once inflation accelerated.
Of course, one could argue that investors should have sold the 6 percent bond and switched into the newly issued inflation-linked securities. That is true. However, such pricing mistakes combined with easy exit opportunities are not common in bond markets. Few issuers are likely to repeat such an error. Consequently, neither EU bonds nor Hungarian government securities are likely to offer similar opportunities in the foreseeable future.
This is why equities must also be part of the discussion. They are undeniably riskier instruments, often paying no annual dividend and offering neither a maturity date nor guaranteed payouts. In exchange, however, they offer the potential for significantly higher returns.
EU regulation primarily affects European companies, although the size and purchasing power of the Union also influence the performance of foreign firms operating within the European market. One of my favorite examples is pork production. The EU is the world’s largest consumer market for pork products, which means companies supplying the Union are often compelled to comply with Europe’s stringent animal welfare regulations, whether they like it or not. This increases their operating costs, compresses profit margins, and negatively affects valuations. In other words, European consumer protection can alter the profitability of Argentine producers. Globalization never ceases to amaze.
Given all this, how should one begin investing in equities?
The stock market is a vast ocean and an enormous intellectual challenge even to survey, let alone to identify seemingly certain winners.
I will not attempt such a survey here. If I can offer one piece of advice, it would be to start close to home. Focus on sectors where you work, where you understand the products and companies involved, where you can broadly grasp changing customer needs and how market participants respond to them.
I would add one more lesson: learn to rise above what I call the starstruck effect. Simply because you know which company is the largest, strongest, or most profitable in a given sector does not mean it is the best investment.
The stock market always prices the future. The company currently sitting at the top may or may not retain its position. What is certain is that if a company truly possesses all the advantages listed above, those strengths will already be reflected in its valuation. You may end up buying at or near the peak, only to watch the stock reverse shortly afterward. Before long, you find yourself sitting on a losing position.
Where I can be more helpful is by sharing the sectors I currently monitor in Europe.
Before doing so, however, an important disclaimer:
The financial opinions and information presented here are provided solely for informational purposes and do not constitute investment advice or an investment recommendation. As a private individual, I do not provide regulated financial services and do not take into account any individual’s financial situation, investment objectives, or risk tolerance. Any investment decision remains solely the responsibility of the investor.
With that out of the way, here are the sectors I currently follow in Europe.
Banks and Financial Intermediaries
This is the first area where the EU has explicitly identified deeper integration as a priority. Given the strong political focus, I expect regulatory changes that may create significant value opportunities.
Banking consolidation has already begun, albeit slowly. Acquisitions and stake-building activities are underway, although national governments frequently attempt to obstruct them.
Some notable players include:
UniCredit – Italy’s largest bank. It has pursued an aggressive acquisition strategy and appears determined to ensure that any future regulatory framework finds it among Europe’s leading institutions.
Commerzbank – Germany’s second-largest bank. Its weaker performance has attracted attention from potential acquirers. The sharks are already circling—and UniCredit is among them. A successful takeover could significantly increase shareholder value.
BBVA – Spain’s leading bank. Thanks to the absence of language barriers, it maintains a powerful network throughout the Spanish-speaking world. Like UniCredit, it is pursuing growth through acquisitions and facing political resistance along the way.
Deutsche Bank – Germany’s flagship banking institution. Numerous scandals have damaged its reputation over the years, increasing both risk and valuation discounts. One thing seems certain: a bank of this size will eventually appear on one side or the other of a major consolidation deal.
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Infrastructure Development
Beyond traditional infrastructure such as highways, railways, and ports, I am particularly focused on projects linked to the ongoing AI revolution.
The reason is simple. AI-related companies are currently trading at valuations that appear extremely stretched and will likely experience corrections at some point. Yet the underlying infrastructure required to run AI models demands enormous investment.
Although Europe has fallen behind in developing frontier AI models, the supporting infrastructure is generally built within the region where those models operate. This creates opportunities for European companies, especially given the substantial support available from both national governments and supranational institutions.
Some notable players include:
Schneider Electric – A French multinational giant. It holds leading positions in data-center infrastructure, industrial automation, and related software solutions. One of its greatest strengths is that it competes successfully on a global scale without relying heavily on European market protections.
Engie – Another French company approaching the AI boom from a different angle. As an energy trader and network operator, it maintains a well-balanced portfolio. It is one of Europe’s largest natural gas traders and a major participant in electricity markets. The enormous energy requirements of large language models place the company in a favorable position. It can supply this demand through both traditional gas assets and renewable energy capacity. Its close ties to France are particularly valuable, given the country’s reliance on nuclear power and its likely central role in Europe’s future energy system.
ASML – A Dutch company that may be the clearest example of a firm successfully transforming technological superiority into a near-monopolistic market position through intellectual property protection. Its niche is semiconductor manufacturing equipment. While American and Taiwanese firms dominate chip production and Chinese companies strive to catch up, ASML supplies the machines upon which modern chip fabrication depends.
The company’s strategic importance is difficult to overstate. Several years ago, under pressure from the U.S. government, ASML was forced to withdraw from a planned sale to China. As a result, it has become a critical factor in the ongoing technological competition between the United States and China.
It is therefore inconceivable that the EU would adopt regulations undermining this strategic advantage. On the contrary, further support and regulatory easing—particularly in research and development—appear more likely.
In short, these are the companies and sectors that I currently monitor and, in some cases, already invest in. The specific firms themselves are less important than the broader strategy they illustrate. Naturally, there are no guarantees of success; risk is an inherent part of equity investing.
And just to build anticipation a little further, I plan to discuss investing and risk management in much greater detail in future articles—raising the stakes by expanding the scope to the entire global market.
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