A new article from DWS Asset Management warns the re-election of Donald Trump in the US poses ‘a significant risk for Europe’.
The authors of the piece, Europe’s Investment Appeal, said the US election, along with the ongoing war by Russia against Ukraine and broader geopolitical and strategic risks are the fuel for the continent to use capital investment to finance transformation.
According to DWS, the three priorities for Europe to address the continent’s competitiveness are decarbonisation, digitalisation, and defence.
Referring to the recent report from Mario Draghi about the continent’s economy, the DWS authors said: “Digitalisation should address Europe’s productivity problem, fostering innovation and efficiency. Decarbonisation is crucial not only for meeting ambitious greenhouse gas (GHG) targets but also for transitioning to secure low-cost clean energy sources.”
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They added: “In an era of rising geopolitical tensions, reducing dependencies and increasing security by diversifying suppliers of critical raw materials and minimising reliance on imported digital technology should strengthen Europe’s resilience and strategic autonomy.”
To achieve these objectives, according to DWS, governments need to implement targeted policies and incentives that are tailored to the needs of both established companies and start-ups. DWS also says that the deployment of capital is required, including private capital.
It added: “The long-term nature of transformative investment means that some of the most-appropriate opportunities are in private markets, where investors can take the long-term view. Given their significant contribution to greenhouse gas emissions, we identify buildings, transportation, and energy as the three primary sectors that could drive the radical transformation of the continent’s sustainability and digitalisation ambitions.”
A big part of this role, DWS said, can be played by real estate — 35% of which in Europe is held as an investment. On top of this, the 100 million residential homes within the continent that could be renovated and made carbon-neutral would represent the largest part of the EU’s ‘green-investment gap’.
Infrastructure will also be an area of growth, posits DWS. It says that the significant growth of the asset class over the past decade has led to it now forming around a fifth of all AuM in European alternatives.
DWS added: “The convergence of Europe’s infrastructure market maturity, the region’s investment needs, and the desire from investors to play a role in energy and digital transformation, further increase the attractiveness of the asset class, in our opinion.”
