Important security note: Warning of attempted fraud in the name of DWS
We have detected that fraudulent individuals are misusing the "DWS" trademark and the names of DWS employees on the internet and social media. These fraudsters are operating fake websites, Facebook pages, WhatsApp groups and Mobile Apps. Please be aware that DWS does not have any Facebook Ambassador profiles or WhatsApp chats. If you receive any unexpected calls, messages, or emails claiming to be from DWS, exercise caution and do not make any payments or disclose personal information. We encourage you to report any suspicious activity to info@dws.com, including any relevant documents and the original fraudulent email. Additionally, if you believe you have been a victim of fraud, please notify your local authorities and take steps to protect yourself.
Europe’s investment appeal
20/11/2024
The investment routes to express European Transformation
Maria Milina
Research Analyst
Michael Lewis
Head of Research, ESG
Murray Birt
Senior ESG Strategist
Dirk Schlüter
Co-Head, DWS House of Data
Richard Marshall
Head of Infrastructure Research
Ruben Bos
Head of Real Estate Investment Strategy
Michael Verhoeven
Product Specialist
IN A NUTSHELL
- Europe has been at the forefront of sustainability policies for years, illustrated by rapid decarbonization and the deployment of renewables. Europe also leads on most dimensions of economic inclusion and social progress.
- The U.S. election, the continuation of the Russia-Ukraine conflict and broader geopolitical and strategic risks simply fuel the impetus for Europe to transform and unlock capital investment to finance transformation.
- Action such as public-private finance partnerships to de-risk and scale-up breakthrough technologies as well as regulation to make it easier for start-ups and small to medium-sized enterprises (“SMEs”) to access capital markets demonstrate this transformational agenda.
- We view Alternatives as the best route to capture transformative investment opportunities. Alternatives occupy a place in the risk-return spectrum between traditional lower-risk rates and investment grade credit on the one hand and risky equities and high yield credit assets on the other.
- One of the most attractive asset classes within Alternative is infrastructure, which now forms around 20% of assets under management in European alternatives. We expect its appeal to continue given European infrastructure has three crucial benefits relative to other regions namely policy, diversity, and value.
- Real estate investment is pivotal in supporting Europe’s transformation and can play an important role in achieving economic, social, and environmental goals. Structural drivers for the asset class include Europe’s aging population, increasing healthcare spending and advancements in artificial intelligence.
- Similarly, private investments via direct lending offer investors a unique chance to finance SME transformation. Given the floating nature of direct lending loans, the prospect of further monetary easing in Europe should, in our view, provide an additional fillip to this asset class.
Introduction
In this paper, we explore the case for Europe as an investment location. We show how the policy and regulatory environment across the continent is increasingly being tilted to address structural challenges such as weak competitiveness as well as towards unlocking capital investment to finance sector transformation. We then delve into the characteristics of Alternatives as an asset class. Finally, we assess specific investment opportunities within the infrastructure, real estate, and direct lending sectors.
1 / Europe as an investment location
Europe has long been a leader in sustainability policy, but the re-election of U.S. President Trump, with his commitment to trade tariffs, poses a significant risk for Europe. Additionally, ongoing geopolitical risks, including Russia’s invasion of Ukraine, further drive the need for European transformation. Major issues were identified, and recommendations made in important reports from former Italian Prime Minister Letta[1]
1.1 Europe’s strong environmental and social credentials
Europe stands as a global success story in sustainability and social inclusion, two of the world’s most critical issues. Europe has more ambitious climate targets compared to the U.S. and China, i.e. a 55% reduction from 1990 levels by 2030,[2]
Since 1990, Europe has seen its greenhouse gas emissions decline by 33.9% or -1.2% on a compound annual growth rate (CAGR). This compares to a CAGR decline of just 0.1% CAGR in the United States and a rise of more than 3% for China and India.[3]
1.2 Decarbonization, digitalization and defense are Europe’s key priorities
Three strategic priorities to address Europe’s competitiveness were well summarized in the recent report by a former Italian prime minister Mario Draghi: Europe needs to digitalize and decarbonize the economy and increase its defence capacity.[4]