Euroviews. What this week’s stock market volatility means for European investors

Confidence is the motor which drives stock markets upwards. Confidence in management, in markets and in the rational making of policy.

The extreme volatility of the past week underscores the crisis in confidence on European investors, but the recent turbulence also presents opportunities.

Short-term fluctuations may unsettle investors who are used to predictability, but they also present entry points in undervalued sectors.

In general terms, for the last decade, there has been a shift towards trading US-listed stocks, while UK and European valuations have suffered accordingly.

However, a renewed focus on domestic markets is a growing trend amongst investors as they grapple with the unpredictability of the US markets.

Much has been written about the rise of European defence stocks – BAE Systems, Thales, Rheinmetall – but defensive sectors are also in the spotlight.

Healthcare companies such as weight-loss titans Novo Nordisk, AstraZeneca and Roche present stable earnings and a lower sensitivity to economic cycles. Nestle, Unilever and L’Oreal offer consistent cash flows and some cushioning from volatility.

Drip feed into quality

Uncertainty still reigns in some sectors, with nervousness that tariffs on Chinese production will lead to dumping of goods in Europe.

While Chinese EVs are all but excluded from the US market, providing opportunities for VW, BMW and Stellantis, it is likely that BYD and Nio will have to find alternative markets.

While stock picking is important, market volatility has led to increased cash holdings, as investors grow more risk-averse, express lower confidence in equities, and position themselves opportunistically to buy the taban. Money market funds are likely to benefit alongside bank deposits.

So, what should investors do? Holding assets in cash is a great short-term insurance policy but a poor long-term investment.

A gradual drip feed of investment into a diverse range of quality companies could be a smart approach.

Choosing collective investments over single stocks and balancing higher-risk investments with more mundane choices may help smooth out the bumps along the way.

Nick Saunders is CEO of Webull UK, an all-in-one investment platform.