Episode Description:
Europe’s macro outlook is shifting. After years of fiscal restraint and fragmented policy, the region is entering a new chapter—one centered on pro-growth fiscal policy, energy security, and capital-market reform. For investors, this transformation signals the potential for renewed momentum in European equities and fixed income.
In this episode of The Bid, host Oscar Pulido speaks with Helen Jewell, Chief Investment Officer for EMEA Fundamental Equities, and Roelof Salomons, Chief Investment Strategist for Northern Europe at the BlackRock Investment Institute, about how Europe’s evolving macro and investing environment is creating new opportunities across sectors.
They explore how fiscal flexibility is enabling investment in productivity and innovation, how energy transition and AI demand are reshaping infrastructure and power markets, and why European banks, defense companies, and energy-efficiency leaders have emerged as standouts. The conversation also looks at the valuation gap between Europe and the U.S., the implications of potential ECB rate cuts, and what reforms could drive a broader, more durable resurgence.
Key Takeaways:
• Europe’s shift toward fiscal flexibility marks its first explicitly pro-growth stance in over a decade.
• The intersection of energy transition and AI is driving infrastructure and power investment.
• Banks, defense, and efficiency-focused industrials remain strong performers.
• Europe still trades at a discount to the U.S., offering selective opportunity.
• Integration of capital markets could unlock long-term competitiveness.
Europe investing; Europe macro; European equities; investing in Europe; capital-markets union; energy transition Europe; European fiscal policy; European banks; AI power demand; ECB rate cuts; BlackRock Investment Institute; European defense; valuation gap; competitiveness in Europe
Sources: 'What’s needed for an investment renaissance in Europe?', BlackRock Investment Institute, October 2025; NATO, August 2025; BlackRock Fundamental Equities analysis, September 2025; 'Entering The Age of Electricity', IEA Electricity Demand 2025;
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener. Reference to any company or investment strategy mentioned is for illustrative purposes only and not investment advice. In the UK and Non-EEA countries, this is authorized and regulated by the FCA. In the EEA, it is authorized and regulated by the AFM. For full disclosures, visit blackrock.com/corporate/compliance/bid-disclosures.
Oscar Pulido: Europe's economy has faced a challenging decade from sluggish growth and energy shocks to persistent structural hurdles that have kept it trailing the us. But 2025 has brought an air of optimism. More flexible fiscal policy is unleashing more government spending on infrastructure and defense spending while the energy shock has driven progress in the energy transition.
That's raising the question, could Europe be on the verge of an investment renaissance? Welcome to The Bid where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm Oscar Polito. Joining me from London are Helen Jewel EMEA, CIO of fundamental Equities and roll Roloff Solomon's, chief Investment Strategist for Northern Europe in the BlackRock Investment Institute.
Together, they'll unpack the macro backdrop for Europe from the challenges still holding the region back to where they see opportunities emerging and what it will take for Europe to experience a true broad resurgence. Helen and Roloff. thank you both for joining us on The Bid.
Helen Jewell: It's great to be here.
Roelof Salomons: Thanks very much.
Oscar Pulido: So Roelof, welcome to The Bid. This is your first time, we're excited to talk about the investment opportunities in Europe. In fact, this has been a good year for European equities, which have underperformed US equities, most years over the past decade, but this year has been a different story. I'm wondering if you can talk about what's changed in the macro picture that has sparked this optimism?
Roelof Salomons: I think the renewed momentum comes from a sharp shift, both in well mindset and in macro, I would say. But to really understand why that happened, we need a bit of history. Europe was doing great in the 1990s and the early two thousands - the fall of the Berlin Wall, we had the introduction of the Euro, we had the single market. but there were some underlying weaknesses which were exposed by a series of shocks. Talk about the sovereign debt crisis, pandemic, Ukraine War, and more recently, the tariffs. And I think the silver lining is that it focused Europe to confront those challenges head on. And the world has changed, and rising geopolitical fragmentation has also been a wakeup call for Europe, forcing it into, getting serious about building resilience at home.
So, what has changed is urgency, coordination, governments are prioritizing defense, prioritizing energy independence, but also prioritizing competitiveness, that's most important for investors. It's basically a pro-growth agenda. that is really what has changed.
Oscar Pulido: I think when we think about Europe, we often think about some of the barriers that have existed in that region. Things like aging workforces, heavy regulation, underdeveloped, capital markets. If you were to drill down a little deeper, which of these barriers do you see as the most pressing to Europe's long-term competitiveness, and where is there meaningful progress in overcoming some of these things?
Roelof Salomons: Your point on shrinking workforce, I think that's spot on. Unfortunately, there's not much you can do about that. we simply age. But Europe is aging very fast - there's only one country is aging faster, which is Japan. The solution to this is basically raising productivity. That's the way to get out of this - using capital, using labor more efficiently. There are three areas where people are focusing on and three areas where Europe is really trying to overcome this.
One is growing above certain country barriers. It's really difficult for European companies to scale up. but the European Commission is changing solvency rules, harmonizing tax rules, cutting red tape, supervision. And if you reduce some of these frictions, you get to higher productivity growth. So that's the first thing.
The second thing is the capital markets. People know this, but Europeans save a lot, so there's no shortage of capital, but it's stock on balance sheets of banks. Households save a lot, but it's all mostly in bank deposits. If you get that money capital from A to B, then you're really addressing the needs of companies and also generate higher returns for savers or turning savers into investors. That's happening.
And I think the third area of tangible progress is on the energy side. Energy prices are double compared to the rest of the world. And with an affordable energy plan take away some of the barriers and trying to boost investments into the energy, energy space. So, challenges are real, but the direction of travel is also clear. They're clearly green shoots. So, let them blossom.
Oscar Pulido: And speaking of green shoots, Helen, one of the ways that's most visible is in the performance of European equity markets, which notwithstanding some of the structural challenges that European economies face, Roelof has hinted at some progress there, but you've talked about investment opportunities in areas like defense energy, the financial sector. what excites you about these different sectors in Europe?
Helen Jewell: As we've outlined in the paper, there are a lot of sectors in Europe that we do get excited about but let me focus down on those three that you've mentioned European defense companies and European banks have done incredibly well year to date- up around 60% and just over 50% respectively, which is a multiple of the Mag Seven, but there is still further to go.
Let's start off with defense. Now, from a defense perspective, just as Roelof has talked to, what we are seeing is now a prioritization of defense and the European countries have committed to spend 5% of GDP on defense and related infrastructure spends by 2035. That equates to around $400 billion of additional spend over the next 10 years- a substantial amount. So, the industry is set to continue to outperform thanks these allocations. And this is a combination of different types of companies. You have equipment companies, you have other companies throughout that entire chain that will benefit from that increased spend and that need for security.
Let's talk about the banks, the absolute standout sector in Europe for this year. But again, there is still further for these to go as we move forward, and why? Well, the first is that earnings robustness, the macro, as Roelof said, looks robust when you have a robust macro that gives you a resilience in the earnings of the banks. Strong deposit rates, strong loan growth, and on top of that, because of everything we saw post-financial crisis, these are companies with well-capitalized balance sheets. So, what we're seeing is a situation where net interest income remains resilient, even as the European market, cuts rates and the central bank cuts rates, and we are seeing high and attractive shareholder returns as well. And those two things are a really interesting combination.
And then I'll add the third one. Energy. And energy is such a key part of the AI story. There are two parts to energy: energy supply and energy efficiency, and they are two areas that the European market does well. An industrial space with strong energy efficiency names within it, and a domestically exposed utility infrastructure that really does support that AI part of the energy story.
Oscar Pulido: Right. So, listening to both of you, there's an improvement in some of the macro, indicators of the European region, and then that's actually translating into the micro. In other words, we're seeing individual companies outperform.
Roelof, we talked about policy, and Helen alluded to this, which is fiscal policy in the European Union centered around infrastructure and defense. How transformative could this new fiscal flexibility be, and is this a sign of a more unified European growth model going forward?
Roelof Salomons: We would say this is the first time in years that European fiscal policy is explicitly pro-growth. We've been in a period of austerity for over a decade, and now there is a fiscal part to the story.
The numbers are really striking. $800 billion in European funds, $500 billion in Germany's infrastructure. So, we're talking about serious, serious money being deployed. I think the other bit here, which is interesting, not just the fiscal story, but there's also private capital coming alongside the public spending, which is great for Europe.
On your question of whether it's a unified European growth model, I would say it's a step, it's a small step towards a unified European growth. But it's, probably a leap of faith to say that this is the template going forward. There's fiscal flexibility, that's great, but we need to see whether this is a structural evolution. As a European citizen, I would say I would hope so. As an investor, it would be great. I think this collective act to get the pursuit of competitiveness is really important. There's a fiscal part here, and I think the next question is whether this not only happens in periods where there's a need to do something, but also in normal times. And if that's the case then I think you can be really optimistic.
Oscar Pulido: Right, a step in the right direction. I'm thinking back over prior years when we've seen economic regions that have both fiscal policy working in their favor and also monetary policy working in their favor. Helen, I think you touched on the European Central Bank cutting rates, that this seems to be a good backdrop, but something that we have to continue to monitor.
And Helen, when we’ve spoken to you earlier this year on The Bid, we've talked about the topic of infrastructure. You mentioned this and how it's interrelated with the artificial intelligence theme. Europe is racing to secure affordable energy and be part of this infrastructure build out, but I think it remains behind the US and China. So, how does this impact the long-term investment landscape in Europe?
Helen Jewell: To put it simply, AI is putting a huge burden on energy supply and one of the key things you need for economic growth is access to affordable energy. So, this is absolutely critical. You talked about the macro into the micro - this is a really good example of a mega theme into the micro. What are we really seeing?
Well, let's firstly start off with some numbers about the energy demands that AI is putting on the world globally and the IEA forecasts that there is going to be global energy demand growth of 4% for 2026. That compares to around 2-2.5% over the last few years. And on top of that, you also have this need for energy security. No country now wants to be completely reliant elsewhere on other parts of the world for their energy supply. So, this is a key problem that Europe needs to solve. So how is it going to do that? There are two parts to the story.
The first part is increasing the amount of energy that is available, and that comes from increasing the sources of energy. Renewable energy is very much the obvious one here, but when you think about renewable energy, this is additional energy into the grid. It's not replacing one source for another, it is adding more energy sources into the mix. Linked to that as well, the more energy you have coming online, the more you need the mechanism to actually be able to deliver that energy to where it needs to go. So, the networks are also a really big and important part of the energy story.
And then finally, it is that efficiency part as well, which the European industrial names are really, really good at solving for. So, what we need is more energy more efficiency and being delivered to where it needs to go. And if we have those three things, that is what is going to enable Europe to have energy affordability, which is absolutely key.
And the good news is, Oscar, on all of those three things, Europe really is moving forward. When it comes to renewable energy sources, they are something which again, as a region we have delivered against. And what we've also seen is the companies that are exposed to that theme have also done very well this year. But again, we think there is further to go. The industrial names of the networks, these are areas that have got really strong companies delivering into that space. But when you think about it, just keep it across that framework, getting the energy to where it needs to go and doing it efficiently, and that is the key for the deliverable for what Europe needs.
Oscar Pulido: Helen, when you were talking about the energy theme, you mentioned a couple of numbers that at first glance sound kind of small, that you said that global energy demand is going from two to 2.5% per year to now something like 4% growth in energy demand in 2026. We often talk about big numbers when we talk about the size of economies and the returns in individual stocks, but I think that change is actually pretty big in the context of energy markets. Is that correct?
Helen Jewell: Absolutely. An increase of growth of 1.5% might not sound like much, but that is equivalent to adding two Germany's worth of power demand, and that is enormous. So, the pressure that puts on the need for energy is considerable.
Oscar Pulido: So, Helen, hearing you talk about energy theme and artificial intelligence theme, that feels like a very long-term theme, but is there anything that people should know about that is more near term, that should make them optimistic about the region?
Helen Jewell: Yeah, absolutely. So, from a valuation perspective, Europe still looks compelling versus the US. On average, the valuation gap is normally around 20- 25%. That widened out to about 45% a year ago. It's now narrowed to around 40%, but that is still a wide valuation gap. A large part of that valuation gap can be explained by the differential we see in returns and growth of US companies versus European companies, but not all of it. Even if you account for things like liquidity, that valuation gap means that you can have incredibly compelling valuation companies that are worth investigating similar returns, similar growth, but at much lower valuations. So that is the first reason.
The second is the one that we've touched on, and this is the feeling that the economic activity in the region is improving. And on top of that, we might start to see further rate cuts from the ECB. So, from a macro perspective, you are seeing PMI improving and you're seeing the macro backdrop for the region improving.
And then finally, we started off earlier on by talking about the defense names and talking about the banks and some of the energy names that have done very well year to date. But not all companies have been part of the party this year. And what we're starting to see is some of the sleeping giants reawakening. Some of the exporting companies that have been hurt by the weakening in the dollar really starting to pick up in terms of the earnings and returns that they are generating to shareholders as well. So as we start to see that broadening out of the European market, there is reasons to remain really excited about what the region can deliver.
Oscar Pulido: Right, perhaps some of the companies that have outperformed in Europe this year are more domestically oriented, but the transition that could come is you have more of the globally oriented European companies that start to participate in the party, as you say.
Helen Jewell: Exactly that. So, when you have just a small number of sectors that have driven a huge amount of the performance, whilst that is really exciting, in terms of the total performance that's given us, it means that going forward we think that there is more and further that it can go. Now, this isn't an either raw, as we talked about before, defense and banks will remain at the party, but will have more guests involved as well.
Oscar Pulido: Roelof, one of the things that comes to mind is that way back in January, we were in Davos for the World Economic Forum, and one of the people that we spoke to was Philip Hildebrand, who's a vice chairman at BlackRock and who has spent much of his career in Europe in some very elevated roles in monetary policy. And he made the case this was an important moment for Europe to show a more unified approach in order to exit some of the weaker growth weaker performance periods that have plagued the region in the past.
We've talked about some of these themes, but what do you think it will take for Europe to experience a true broad resurgence, something that goes beyond the selective opportunities we've talked about today and delivers more sustained outperformance versus a region like the US?
Roelof Salomons: Great question, and I think there are two angles to this question. One is, returns from equity come from economic growth and they come from changes in valuation, which Helen was talking about earlier, and Europe is cheap. But let's take the growth aspect first.
If we do more fiscal spending like we're doing now, that helps growth. If we invest into innovation and get capital to where it's treated best and raise competitiveness of Europe, that's also great for the growth part. But if we talk about getting those safe assets via the capital markets into productive assets, then you talk really about a double-edged sword. Then you not only raise growth rates, but if you have Europe and really an integrated capital market with a safe asset, then you also lower the cost of capital for European governments, but also for European countries. So, you have a higher return on capital, a lower cost of capital, which would then really be a boost to valuation. So, if you can combine both, we're really talking about the broad resurgence in European capital markets.
Then final point, I think Helen touched on this earlier, the sectors in Europe, which are delivering the returns are the sectors that are growing or the sectors that are already competitive. So, you see that the market is treating growth and is treating competitiveness. So, it would be really good if you have that growth angle and the valuation angle, and then you have the broad resurgence.
Oscar Pulido: Right. It sounds like in listening to both of you, there are some cyclical factors right now helping the region. but the more we see structural changes in. Things like capital markets or regulation. When you put those two things together, you have perhaps a more persistent time period of outperformance that we could see.
We spend a lot of time talking about the US markets given the outperformance in recent years so, it's interesting to hear a different perspective on a different region, and we hope to welcome you both back to hear more about how the European region is outperforming. Helen and Roloff, thank you for sharing your insights and thank you for doing it here on The Bid.
Helen Jewell: Thanks for having me.
Roelof Salomons: It was great, thanks.
Oscar Pulido: Next time on The Bid, Wei Lee joins us to discuss the BlackRock Investment Institute's outlook for 2026, and how mega forces have become key drivers of returns globally. If you're not already, follow us on Apple Podcasts, Spotify, or watch the episodes on YouTube.
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