Goldman Sachs The Markets
A Contrarian Call on Europe
Mark Wilson, Head, Equities Franchise Sales, Global
Banking & Markets
Chris Hussey, Host, Goldman Sachs Research
Date of recording: September 24, 2025
Chris Hussey: This is The Markets. I'm Chris Hussey.
And today is Wednesday, September 24th. And with me
from the London trading floor is Mark Wilson, our head of
equities franchise sales with the Global Banking & Markets
division. Mark, thanks so much for joining us on The
Markets.
Mark Wilson: Thanks very much for having me, Chris.
Chris Hussey: So, Mark, you have a unique perspective
being able to look across markets everywhere from your
European vantage point. Is sentiment as great as the
market suggests? Or do you think there's still a lot of
money on the sidelines to make this rally go a little bit
longer?
Mark Wilson: It's a great question Chris because we
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are six months into what's almost a historic rally now. And
there are certainly pockets of exuberance in the market.
But for the most part when we look at our client data and
our client positioning and sentiment indicators, it's far
from stretched. And I would probably characterize it as
constructive rather than exuberance.
And to put some numbers on that. We frequently look at
our prime brokerage data and we can cut by client types.
But across the overall book or across our fundamental
equity long/short clients, their net exposure to the market
and their long/short ratio is far from stretched right now.
In fact, it's right at the 50th percentile on a one year look
back.
And so, I don't think that professional investor sentiment
has quite kept up with the level of the market. And so, a lot
of people came into September post summer with cash on
the sidelines. Many of those people have been stopped into
this rally. And so, I'd certainly caution that there's less
money on the sidelines today than there was at the
beginning of the month.
Chris Hussey: Yeah, it's a great point. September,
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usually a bit of a down month. It hasn't been. A lot of
people got sort of stopped into the rally in a weird kind of
way. Let's shift gears for a second because you also spent
this week in Germany at our 14th annual German
Corporate Conference. And that gives you a very unique
perspective at a very interesting time in Europe, as well as
Germany. What were you hearing from the sidelines?
What's the sentiment around Germany and Europe more
broadly?
Mark Wilson: So, it was an interesting time to be there.
If you go back, if feels like a lifetime ago now, but if you go
back to Q1, really one of the key macro stories of the year
seems to be emerging and that was Mertz's new
government in Germany and the very sharp about turn in
fiscal policy that they were announcing.
The market has really given up on that. And on the ground
in Munich this week at our Corporate Conference, it was
very clear that many companies are yet to see any real
tangible pick up in demand or any impact from that fiscal
spend.
I think the market really has got there already. The market
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has given up. Sentiment has really not given up on the
trade. But certainly, moderated positioning. And we've seen
that in our flows and in our positioning data.
The other thing I would stress is the data on the ground
continues to be mixed. We have seen decent PMI numbers
this week. Weaker IFO data. But it's worth reminding
people that if you look back to the first quarter, we've run
significant upgrades to our European GDP estimates for
this year and next while we've been cutting US GDP
estimates. And when you think about the very long period
of underinvestment that we've seen in Europe, if the fiscal
story is true and if there is really an investment cycle
ahead, it could be quite significant. And we're pretty
confident in that underpinning to our above consensus
GDP estimates now for the year.
Chris Hussey: Yeah, no, it's a great point. We are above
consensus now out there. There is the prospect of fiscal
stimulus juicing the economy a little bit. But at its core,
you know, a call on Europe is a little bit of a value versus
growth trade, right? You have to leg into a cheaper value-
driven market in Europe over that growth-driven market in
tech in the US. Do you still like that trade? Is that a trade
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that you can get behind right now?
Mark Wilson: Yeah, so I certainly don't want to give up
on the AI story. The AI story is one of the great investment
themes of our time. And so, I think it's worth reminding
ourselves that, you know, one of the luxuries in market
and investing is it's not a binary decision. So, of course we
want to stay invested behind the AI story and much of that
is obviously a US story. And you're right, value is not
reason enough to want to buy Europe.
But I would caveat two things. There is growth. It may be
in pockets. It may not be uniform. But there is growth. The
banks have given us an example many times. European
banks trade on single digit PEs, but you get double digit
earnings growth and you get, in many instances, an
aggregate across the sector. A double-digit total
shareholder return.
And then again from a macro perspective, many people
have pointed to the lack of EPS upgrades you've seen for
the European market this year. But we have to remember
the strong euro, the weaker dollar has been a major, major
impediment to earnings growth. And if we just look at
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domestic-facing sectors of the economy, those less
impacted by the stronger euro, we have seen double digit
earnings upgrades. And so, I do think there's growth there.
You just have to look harder sometimes.
But I would also just bring people's attention to the idea
that it's been such a different dynamic in the European
equity market versus the US equity market this year. The
US has really been led by large-caps and growth. And
Europe gives you something totally different. We've seen
significant European outperformance, especially on dollar
basis. But that European performance has been led by
small-caps and value. So, there is a real diversification
benefit here.
Chris Hussey: All right, one more question before I get
to your best trade. And that is volatility. Because this is
seasonally a high volatility period that we're legging into
with 3Q results, fourth quarter capex, all that sort of stuff
that comes out over the next month or so. Yet the market is
very complacent right now. Is this a good time to sort of
express a view with options? What do you think about a
volatility pick up as we go into the fall?
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Mark Wilson: Yeah, so as you rightly say, seasonally
we are certainly going into a period when you want to be
long vol. I think it is staggering to have seen the
compression in index vol that we've seen alongside this
very persistent six-month rally. I think for many of us in
markets and more broadly, the headline volatility in the
news flow volatility has absolutely remained. But you look
at the VIX now and index vol is back in the mid teens and
has really been crushed and is not reflecting any of that.
What's most interesting, I think, and also creates
opportunity is despite that very benign index vol
environment, stocks are really moving quite significantly.
So, US Q2 reporting season, we saw the largest one day
move on earnings results in stocks that we've seen since
2009. If you look at the most recent European corporate
earnings season, stocks have moved almost four times
their average daily move.
And so, I think the opportunity really is playing some of
that single stock and sector dispersion that we all see. And
is an obvious theme alongside some of the technology
disruption which continues to permeate through markets.
But leveraging that very low vol environment to be able to
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access that.
Chris Hussey: All right, let's put a bow around all this.
What's the trade? What do you like here?
Mark Wilson: So, I'll give you two ideas. First is AI
related, but I'm going to specifically say invest behind
Chinese AI. For anyone who's followed this, there was
really a tsunami of AI innovation announced alongside lots
of other innovation as well, but Chinese tech has been on a
tear. AI innovation. The domestic prioritization of AI and
tech-levered industries. Some announcements around their
innovation around their own silicone to compete overseas,
but also a much more nuanced message around the
emerging US and China relationship, I think means that
you've got a great opportunity to be investing in China AI,
which both the stocks and the investment cycle are in a
much earlier period of their life cycle.
Chris Hussey: Okay Mark, what's the second trade?
Mark Wilson: Okay. So, this one's a little contrarian.
But I want to be long German domestic economy and fiscal
spend beneficiaries. Investors by and large have given up
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on the trade. There's very little in the price. We can see
from our positioning and flow data that investors have
moved away from this. Yet we're seeing a decent pick up in
real incomes, in household disposable income. We're seeing
a real halo impact from the defense spend thematic, which
continues to come on strong. And although some of the
fiscal spend prioritization is inevitably being pushed out, I
think there's enough earnings momentum here in those
names to want to be long.
Chris Hussey: Terrific. A two-for this week: China AI
and German fiscal spending. Last question for you. Next
week, end of September, beginning of October, what are
you watching?
Mark Wilson: So, next week brings month end which
often ends up being a market event as portfolio
rebalancings happen. So, we'll be a little bit more cautious
around positioning into month end. And then I do think
that the market's got much more comfortable about the
growth outlook. But there is still a wall of worry to climb
around the possibility of a resurgence in inflation. And so,
I'll be looking for the EU CPI data and the ISN prices paid
data. And then it's an important week as always with the
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JOLTs numbers and the payroll data in the US.
Chris Hussey: Yeah, a lot to watch for next week. Mark,
thanks so much for joining us on The Markets.
Mark Wilson: Thanks very much for having me, Chris.
Chris Hussey: That does it for this week's episode of
The Markets. I'm Chris Hussey. Thanks for listening.
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