Financial markets: Analysis and convictions of CPRAM - March 2025

Malik Haddouk, Director of Diversified Management, and Juliette Cohen, Strategist, decipher the markets, and Julien Levy-Kern, Diversified Portfolio Manager, shares his convictions on the themes to follow.

The markets were characterized in February by a resurgence of uncertainties, particularly in the United States. Growing concerns about the impact of the Trump administration's policies weighed on business and consumer confidence, reigniting fears about growth.

Leading indicators confirmed this slowdown, with a contraction in service activity and a decline in investment intentions of small businesses. In this context, equity markets declined, with the MSCI World recording a negative performance of -0.7% for the month.

The outperformance of Europe compared to the United States in 2025 was further accentuated in February, with major US indices experiencing declines. The MSCI Europe rose by +3.5%, driven by increasing expectations of a ceasefire in Ukraine and the positive momentum of financial and defense stocks.

In Asia, the 12% increase in Chinese stocks supported emerging markets. In contrast, the Japanese market declined, penalized by the appreciation of the yen (+2.7% against the euro). In the United States, concerns about the results of technology giants weighed on the S&P 500.

The major rotation that propelled European and Chinese stocks ahead of those in the United States has continued for the second consecutive month. The reasons for this reversal of trend are numerous and could continue throughout the year, unless the trade war escalates.

Firstly, it should be noted that earnings revisions are improving in Europe and China, but have declined in the United States, which is lagging behind for the first time since 2022. Furthermore, U.S. stocks are still trading at a valuation premium at its highest level in 20 years. Europe is priced at its fair value, while China remains below its historical average.

On the economic front, we could also witness a rebalancing of growth: leading indicators in the eurozone show an improvement in the future outlook. Additionally, political instability is dissipating in the two major countries in the region. The results of the German legislative elections pave the way for a pro-growth policy, a potential game-changer for the region. A mega stimulus plan is on the table and the sacred debt brake could be lifted, which would raise growth prospects for Germany.

Risks on the trade and budget policy of the US administration have increased. Some US activity indicators are declining and at the same time, inflation figures have been rather strong, which limits the response of the Fed.

This is followed by a underperformance of US cyclical sectors compared to defensive sectors. For the month, the MSCI World is slightly down, MSCI Value gains 1.4% and MSCI Growth loses 3%. This rotation should continue to support the eurozone, which has outperformed the US by 10% since the beginning of the year. While the valuation gap between the two regions has narrowed, a ceasefire between Russia and Ukraine could be an additional asset for Europe, especially for the Chemical, Construction, and Defense sectors. Among Value stocks, with a P/B of 0.8, Banks remain interesting, especially in the US where deregulation could be a significant support. Within Growth, in the AI theme, the recent news from DeepSeek is likely to further accelerate the adoption of AI, but drastically questions the high valuations and significant CAPEX of US companies. The dominance of the 7 Magnificents, down 9% in February, could continue to be questioned and the market has started to find Chinese Tech companies attractive.

In this context, themes related to demographic changes are the only ones with positive performance. In particular, the Food Challenge is up 4%, exposed to defensive stocks, and the Aging Population is up 1.5%, exposed to financials. As for innovation-related themes, they are experiencing a questioning of valuations within AI, down 3.4%.

Our key points

We remember from this month of February, the climate of uncertainty generated by the succession of announcements of increases in US customs duties. This risk-off context has been unfavorable for US stocks and positive for bond assets. On the other hand, European and Chinese stocks have benefited from more favorable growth prospects and less stretched valuations.