Europe’s HALO effect:

European equities with hard-to-replace physical assets, pricing power and low AI obsolescence risk should remain resilient as geopolitical fragmentation reshapes investment cycles.

• Europe faces renewed pressure from Chinese competition, higher energy costs and political instability; oil briefly fell close to USD 70 per barrel in early July before rising above USD 100 as the US-Iran conflict re-escalated.
• Volkswagen’s latest profit warning and plans for around 50,000 additional job reductions illustrate the pressure on Germany’s automotive model, while BYD is expanding its European commercial-vehicle offering.
• The EU’s new steel regime cuts tariff-free import quotas by 47% versus the 2024 framework and raises the above-quota duty to 50%, potentially improving conditions for European producers such as ArcelorMittal.
• AI-related positioning suffered one of its sharpest unwinds since 2009 in July, but adoption is broadening through consumer agents, cybersecurity and enterprise software; banks may benefit from automating large human-driven workforces, although AI could also intensify deposit competition.
• The authors see further opportunities in European aerospace, defence, industrials, ports, oilfield services and electrification, citing DP World’s planned UAE terminals, European grid investment by Elia, E.ON and National Grid, and potential offshore-wind capacity constraints benefiting Cadeler.

Takeaway: Investors should favour European HALO businesses in civil aerospace, defence, industrials, materials and infrastructure, while remaining cautious on consumer companies and recognising that AI winners and losers can change rapidly.