Equities

International equities: The shifting opportunity set

November 18, 2025 - 3 min

From a long-term perspective, we think European equities remain a very attractive place to be. And on the chart on the right, I would say is, you know, not to be unexpected, given what you see on the left, is that the implied equity risk premium is just much higher in Europe. And frankly, again, we think is overstated, relative to what should be fundamentally deserved and also high versus history, still.

So, what do we like about or what's exciting about international markets? So, we talked in the past on one of these prior webinars about German fiscal reforms. The coalition government that took over earlier this year has come out with a number of policy initiatives that should be very stimulative, not only to the German economy, but also to the European economy.

This five hundred billion euro infrastructure and climate fund, I think is very supportive to investment spend. It’s supposed to be allocated over twelve years, so this is not supposed to be a one and done type thing that's gonna benefit one year and then it just disappears again. I think it is somewhat of a structural change in Germany and around infrastructure spending.

On the flip, on a related note, they've relaxed the debt break. As you know, they had a very limited amount of ability to borrow above GDP that has now been relaxed for a number of different areas for the federal government, and even the states, now have the ability to borrow in excess of their, to basically take on a little bit of leverage versus the GDP, so they don't have to effectively have a balanced budget. And so you get multiple levels of now where German in the public spending, they can spend more than they were able to in the past.

Then, of course, you have increased defense spending, prompted by what's happening in Ukraine and also pressure I believe from the from the U.S. government. Germany and frankly, the rest of Europe for the most part are significantly increasing defense spending. There is a significant stimulative impact to that across Europe, and so again this is another positive when you think about economic growth coming from defense spending that wasn't allowed in the case of Germany or just wasn't being done in a number of other European markets.

And then finally, there are a number of tax incentives happening in Germany that including a kind of incentive depreciation around investments, car purchases, corporate tax reform, a little bit longer dated, but corporate tax reduction from over the twenty eighth to thirty two time period, again, thinking about as a long-term investor making Germany a more attractive place to invest than it has been in the past.

And I think Germany is the most important economy in Europe, but all of this sprinkles out to other parts of Europe and you're also seeing governments and other European countries start to replicate some of these types of things, which I think should be further supportive of economic growth going forward.

But it's not just about Europe, in Asia, for example, there are some also exciting things happening, maybe most notably is South Korea's value up program. It's running fits and starts, but fundamentally, South Korea over the last few years has in some ways copied what started to happen in Japan where the TSE started to push higher ROEs, more focused on shareholder returns and corporate governance, and the South Korea value up program is really focused on hierarchies, higher shareholder returns especially in the financial sector.

And we have exposure to financials in both funds in South Korean banks and it really is changing, having met with these companies for many years, it really is changing the way that these companies respond and react to shareholders and the way that they manage their businesses, which I think is very exciting to see and is leading to justified increases in valuations and fundamental performance of the businesses.

And then Japan this year has revised a stewardship code, made some other changes to I think further improve corporate governance and transparency, and also you're seeing incrementally more focus on shareholder returns and buybacks. If you look at buybacks over the last twelve year or twelve months, excuse me, by far the highest it has been over any number of years. So again, we're seeing better use of capital in these markets, more focused on shareholder returns and shareholder outcomes, which we think makes for an environment that is more conducive to investing.

Justin Hance, Director of International Research and Portfolio Manager for Harris I Oakmark, shares why he and his team believe European equities remain an extremely attractive place to invest in for the long term, and where they are seeing positive fiscal developments and interesting opportunities around the world.

Key highlights:

The new government in Germany has come out with several policy initiatives – such as the €500B Infrastructure and Climate Fund – that should be stimulative not only to the German economy but also to the European economy.
Numerous tax incentives are happening in Germany that include depreciation in areas such as investments, car purchases, corporate tax reform, and more, making the country a more attractive place to invest in than in the past.
Much of Europe is significantly increasing defense spending, which should have a significant stimulative impact on this region.
Exciting things are happening in Asia, most notably South Korea's Value Up program that is focused on corporate governance and higher shareholder returns, especially in the financial sector.
Japan now has a revised stewardship code to further improve corporate governance and transparency, and is focusing more on shareholder returns and buybacks, which may foster an environment that is more conducive to investing.

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