European Capital Partners

In an interview with Der Spiegel, economist Moritz Schularick observed, “The Federal Republic of Germany is facing the most challenging moment in its history.” We couldn’t agree more. This critical juncture results from a confluence of longstanding structural issues—such as dependency on Russian gas, a mishandled nuclear exit, bureaucratic overload, sluggish innovation, and a struggling automotive sector—now intensified by pressing new economic and security challenges following Trump's election. Germany’s traditional reliance on the U.S. for defence and its significant trade with China are under strain. At a time when decisive political leadership is essential to confront these challenges, the coalition of Social Democrats, Greens, and Liberals has fractured, leading to a political impasse. Amid this standstill, the country is waiting anxiously for a fresh direction—perhaps under Merz?—and a renewed "audacity of hope."  #ecplu #longterminvesting #valueinvesting

In declaring his presidential victory early Wednesday morning, Donald Trump praised billionaire Elon Musk as a "super genius." Surrounded by visionary entrepreneurs like Musk, the president-elect will need extraordinary strategies to tackle the formidable challenges awaiting his administration. Chief among these is the mounting US government debt, which has reached an unprecedented level: in absolute terms, it stands at $36 trillion—nearly mirroring the debt-to-GDP ratio after World War II. The cost is steep; the U.S. currently pays an eye-watering $1.2 trillion annually in interest alone, consuming around 23% of all federal revenue from taxes, tariffs, and fees. #ecplu #longterminvesting #valueinvesting   Trump’s ambitious agenda could add an estimated $7.75 trillion to this burden. With debt levels already straining the budget, achieving these goals without severe austerity measures or fuelling inflation may indeed require more than just bold ideas—it might take near-superhuman resolve.

Today we provide you with a summary of an Amundi research paper on the main differences between a Trump and Harris presidency and their potential impact on financial markets. While it is still early days we understand that Trump has won North Carolina and is leading in Georgia with 90% of the votes counted, so we therefore recommend to focus on the left side of the provided table first this morning. #equities #longterminvesting #valueinvesting

Election Tuesday is shaping up to be a photo finish, with results likely too close to call. Investors should prepare for either scenario—a Republican or Democratic President. At ECP, we’re staying focused on what matters most economically, regardless of political outcomes: the immense debt levels the next President must address without 1) stifling growth through austerity or 2) sparking inflation. We emphasize the importance of the Fed’s independence, as well as the inflationary effects of tariffs. Bond markets are already signalling caution: 10-year yields have been climbing since mid-September, with European yields rising in parallel. Investors, stay alert—volatility may lie ahead.  #ecplu #longterminvesting #valueinvesting #equities

Warren Buffett’s Berkshire Hathaway decreased its holding in Apple by another 25% during the third quarter. In one year, Buffett has sold roughly 2/3 of his position in the technology company. The proceeds have not reinvested into the equity markets but mainly put into T-Bills. Noticeably Berkshire is also not buying back its own shares. As a consequence, the cash balance ( including short term Treasuries ) has reached a record level of 325 bn USD. At the current stage, the Sage of Omaha does not appear to find value in the equity markets and longer term bonds. At ECP, Berskshire remains one of our core holdings. #equities #valueinvesting #longterminvesting

Over the past decade, sales per share for the S&P 500 increased by 68%, earnings rose by 92%, and the index price surged by 202%. Excluding dividends, nearly half of the index's performance can be attributed to multiple expansion. However, it’s unlikely that the rapid price-to-earnings (P/E) multiple expansion will continue at the same pace in the coming decade, primarily because the last ten years benefited from exceptionally low-interest rates. For equity investors, two key takeaways emerge: 1) Valuations will once again play a crucial role, and 2) Stock picking will become essential to avoid overpaying for companies with strong fundamentals. This focus aligns perfectly with our investment approach at ECP.

The higher valuations of U.S. equities are largely driven by a clear advantage in profitability, both compared to their own historical levels and to European counterparts. Over the past decade, S&P 500 companies have boosted their return on equity (ROE) by approximately 5%, now standing over 4% higher than that of major European firms. #equities #longterminvesting #valueinvesting

Philips shares dropped 17% yesterday following third-quarter results that fell short of expectations, prompting the company to lower its full-year comparable sales forecast. Management cited weakness in the crucial Chinese market, which accounts for 7.7% of 2023 sales, due to low consumer confidence and an ongoing anti-corruption campaign affecting the healthcare sector. We see the €4 billion market cap decline as a buying opportunity, as Philips' transformation into a high-growth, high-margin healthcare company remains on course. The stock currently trades at 16.6 times next year's earnings and 8.9 times EV/EBITDA. Accordingly, we are increasing our position in our European Value Fund. #ecplu #longterminvesting #valueinvesting

The IMF has released its updated economic growth forecasts for 2025, projecting global real GDP growth to hold steady at 3.2%. While growth is expected to moderate in both China and the U.S., the latter is likely to remain the world’s primary economic driver. Among the major economies, only India and China are expected to outpace the U.S. in terms of growth. Meanwhile, France is forecasted to remain largely stagnant, with modest recoveries anticipated for Japan and Germany after their near "no-growth" conditions in 2024. However, given Germany’s current economic and political challenges, realizing this recovery seems uncertain. #ecplu #valueinvesting #equities #longterminvesting

One of ECP's five key quarterly investment themes highlights the United States' dominant role as the primary driver of the global economy. Today's graph illustrates this perspective by comparing GDP growth and key leading indicators—Manufacturing and Services PMIs—for both the US and Europe. Two key takeaways emerge. Firstly, the US GDP continues to expand, while growth in the Eurozone is nearing zero. Secondly, the services sector is propping up both economies, whereas manufacturing remains in recessionary territory on both sides of the Atlantic, with the Eurozone facing a notably harsher downturn.  #equities #longterminvesting #valueinvesting #ecplu