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Bank of America expects the Russian invasion of Ukraine to accelerate and transform seven investment themes across Europe, including a substantial increase in defence spending and a sector-wide energy transition to renewables and independence.<\/p>\n
The Russia-Ukraine conflict is set to have far-reaching effects that will reshape European geopolitics, societies and financial markets, according to Bank of America (BofA).<\/p>\n
In a report titled\u00a0European Thematics: A New Direction for Europe<\/em>that was published on 22 March, the bank identified seven key structural investment themes that it expects to redefine Europe because of the conflict.<\/p>\n \u201cThe consequences will range from the development of new industries, the acceleration of existing ones, additional infrastructure and technologies,\u201d it states, adding that the conflict could also come at a cost to some industries.<\/p>\n The thematic trends highlighted are increased defence spending; a greater emphasis on environmental, social and governance (ESG); a sector-wide energy transition to renewables and independence; reshoring for the security of supply; structural changes to achieve better cost competitiveness; and higher inflation and interest rates.<\/p>\n The report also singled out several stocks across 13 sectors that are exposed to each investing theme, of which have a collective market cap of $1.75trn.<\/p>\n BofA anticipates Europe to increase its defence spending budget to between \u20ac150bn and \u20ac200bn in 2022 and 2023, following Germany\u2019s decision to double its defence budget on 14 March.<\/p>\n The investment bank believes cybersecurity, space-based connectivity as well as research and high-end technologies, such as semiconductors, will be a priority for \u201cEuropean defence supremacy\u201d.<\/p>\n Within the defence and technology sectors, BofA noted four stock picks, including aerospace manufacturers\u00a0Thales [HO.PA]\u00a0and\u00a0SAAB [SAAB-B.ST], arms maker\u00a0Rheinmetall [RHM.DE]\u00a0and security technologies developer\u00a0Hensoldt [HAG.F].<\/p>\n Energy independence is the \u201cnumber one strategic priority\u201d for Europe, BofA said. However, moving the region\u2019s reliance from Russian oil and gas is expected to require significant investment across three core areas: gas infrastructure, low carbon energy sources and carbon capture. In the push for energy independence, the bank\u2019s stock picks are\u00a0Shell [SHEL]\u00a0and\u00a0Equinor [EQNR].<\/p>\n While BofA is sceptical of Europe\u2019s ability to achieve this in the short term, it expects the region\u2019s long-term energy transition to be key to achieving independence. It sees growing investment in seven areas, including in renewables, nuclear energy, gas and electricity networks, energy efficiency, alternative energies such as biofuels, hydrogen and carbon capture, and electric vehicles (EVs).<\/p>\n There are several companies that it highlighted as its top picks, including\u00a0Vestas Wind Systems [VWS.CO],\u00a0Siemens Energy [ENR.DE],\u00a0Aker Carbon Capture [ACC.OL],\u00a0Mercedes Benz [DAI.DE],\u00a0Air Liquide [AI.PA]\u00a0and\u00a0RWE [RWE.DE].<\/p>\n According to BofA, for Europe to reduce its reliance on external supply chains, several policy and corporate initiatives are needed to accelerate reshoring. One of the three areas that the report suggests will be a focus is semiconductors. It forecasts production capacity to increase to 20% global market share by 2030.<\/p>\n Industrial automation and software companies are also expected to help shorten supply chains, with increased investment across artificial intelligence, cloud computing and 5G deployment. Another core part of the region\u2019s plan for reshoring will be to secure supply partnerships.<\/p>\n BofA\u2019s stock picks for this thematic trend include\u00a0DSV [DSV.V],\u00a0Maersk [MAERSK-B.CO],\u00a0Siemens [SIE],\u00a0AVEVA [AVV.L]\u00a0and\u00a0STMicro [STM], with a focus on the transportation and logistics sector.<\/p>\n Structural industrial challenges to remain competitive<\/p>\n Rising energy costs across Europe is also expected to make certain areas of its industrial sector, such as chemicals, oil and gas, automotive and some energy-intensive segments, uncompetitive, BofA explained in the report.<\/p>\n As a result, the bank believes that a greater focus on alternative energy production could help to offset this. The three stocks that it expects to face headwinds include\u00a0BASF [BAS.DE],\u00a0Yara [YARIY]\u00a0and\u00a0Outokumpu [OUT1V.HE].<\/p>\n After a long period of record-low interest rates, BofA believes that the next few years will be defined by higher inflation and higher interest rates. Under a scenario of a slowing economic environment with no recession, it believes that banks are set to grow, generate cash and redistribute it.<\/p>\n At present, it states, this isn’t being priced in. Conversely, real estate \u2014 one of the big winners of the low-interest-rate environment \u2014 will face a much tougher period. Finally, it sees significant downward pressure on low-income consumer purchasing power and, as such, is cautious on retail overall.<\/p>\n Its stock picks for this theme are\u00a0NatWest [NWG]\u00a0and\u00a0DNB [DNB.OL], with\u00a0Hammerson [HMSO.L],\u00a0Inditex [IDEX]\u00a0and\u00a0Zalando [ZAL.DE]\u00a0being more \u201cchallenged\u201d.<\/p>\n BofA also believes that the Russia-Ukraine conflict will lead investors to reprioritise ESG investing, with a particular emphasis on governance criteria. Another factor that is expected to change is companies that manufacture weapons. It foresees weapon manufacturers being not \u201cno-no anymore\u201d. While the bank did not single out stock picks for this theme, it did highlight the energy and defence sectors as being the two most primed to benefit.<\/p>\n The seven investment themes that BofA discussed in the report does not represent an exhaustive list of all the structural changes that Europe could go through. \u201cInstead, we see it as a list of the most impactful and long-lasting themes that emerged from our discussions with our research department.\u201d<\/p>\n Disclaimer\u00a0Past performance is not a reliable indicator of future results.<\/p>\n CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.<\/p>\n The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.<\/p>\n CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.<\/p>\n *Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.<\/p>\n","protected":false},"excerpt":{"rendered":" Bank of America expects the Russian invasion of Ukraine to accelerate and transform seven investment themes across Europe, including a substantial increase in defence spending…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-964","post","type-post","status-publish","format-standard","hentry","category-innov8ions"],"_links":{"self":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/964","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/comments?post=964"}],"version-history":[{"count":3,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/964\/revisions"}],"predecessor-version":[{"id":968,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/964\/revisions\/968"}],"wp:attachment":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/media?parent=964"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/categories?post=964"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/tags?post=964"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Increased defence spending<\/h3>\n
$150BN<\/h1>\n
ESTIMATED INCREASE IN EUROPE’S DEFENCE SPENDING BUDGET IN 2022, PER BANK OF AMERICA<\/h3>\n
Energy transition to renewables and independence<\/h3>\n
Reshoring and security of supply<\/h3>\n
Higher inflation and interest rates<\/h3>\n
The rise of ESG<\/h3>\n