Investing.com -- A weakening U.S. dollar could reshape the investment landscape in Europe, according to Jefferies analysts, who say investor conversations are now focused on “when and not if dollar weakness continues.”
Jefferies outlined two possible paths: a controlled decline in the dollar or a disorderly devaluation that could hurt global growth.
In either case, the implications for European equities are seen as significant.
“We see Airlines, Banks, Consumer, Mining and Infrastructure as best positioned” in a weaker dollar environment, the analysts wrote.
They argue that the structural drivers behind the dollar’s recent drop, down 8% since January, are unlikely to reverse soon.
“Narrowing the large U.S. trade deficit is core to the Trump administration’s agenda,” Jefferies noted. Additionally, they believe the perceived role of the dollar as the global reserve currency may be structurally changing.
From a market perspective, Jefferies sees an opportunity. “The U.S. has peaked as a share of MSCI World market cap,” they wrote, adding that Europe’s relative growth outlook is improving thanks to fiscal expansion, capital markets union, and rising competitiveness.
“The case for large-cap, liquid European stocks may have never looked stronger,” stated the firm.
Jefferies adjusted its Franchise Picks list in response to the shifting FX landscape, adding AB InBev due to “EM tailwinds, $ reporting,” and removing ASM International (AS:ASMI) due to “cycle weakness.”
In a scenario where the U.S. manages trade deals and central banks cushion any turbulence, the firm says sectors like food, retail, and steel would benefit. However, in a more disruptive outcome with rising tariffs, Jefferies warns that investors may need to “brace yourself.”
Still, they remain optimistic, stating that “commodities remain structurally well-positioned,” and many European sectors now enjoy resilient local supply chains and lower exposure to dollar-linked costs.