In the initial months of his presidency, U.S. President Donald Trump has moved swiftly to implement his pre-election promises, triggering significant geopolitical and economic shifts. His administration imposed a 25% tariff on steel and aluminum exports from the European Union and signaled a withdrawal from NATO and the United Nations, alongside reduced defense support for Ukraine beyond a recently signed strategic mining agreement.
While a 30-day ceasefire between Russia and Ukraine—facilitated in part by the U.S.—offers a glimmer of hope for peace negotiations, concerns persist in Europe. There are growing expectations that Washington may favor Moscow’s retention of post-war territorial gains, a stance that could further strain transatlantic relations.
Europe’s Response: Increased Defense Spending
Germany has taken a notable step in response to the shifting global order. Newly elected Prime Minister Merz has moved to exclude defense expenditures from constitutional borrowing limits, proposing a €500 billion, 10-year infrastructure fund to secure broader parliamentary approval. Analysts suggest Germany could borrow up to €2 trillion over the next decade without harming its growth or fiscal stability.
Meanwhile, Britain, despite its non-EU status, has signaled potential contributions to Europe’s defense efforts, with parliamentary approval granted for relevant policies.
Economic and Market Implications
The combination of increased European defense and infrastructure spending is bolstering growth prospects. Simultaneously, U.S. economic uncertainty—stemming from tariffs, recession risks, and inflation concerns—may enhance Europe’s investment appeal. This sentiment is already reflected in market trends:
- MSCI Europe index has gained 13% year-to-date.
- U.S. indices, in contrast, have declined 4.7% in the same period.
Opportunities for Turkey Amid Europe’s Growth
With 48% of Turkish exports directed toward Europe, a revitalized European economy presents key opportunities for Turkey’s trade and defense industries. Several macroeconomic factors further support this investment theme:
- Euro/dollar parity rebounding to 1.09 from parity levels earlier in the year.
- Oil prices declining from $80 per barrel to $70 per barrel.
- U.S. 10-year bond yields retreating from nearly 5% to 4.3%.
IS Investment’s Portfolio Adjustments
Given the evolving global landscape, IS Investment has made strategic adjustments to its portfolio to align with these emerging trends:
Increased Holdings
- Koç Holding (KCHOL.IS) – Weight increased from 11% to 14% due to strong European sales.
- Ford Otosan – BUY recommendation with 52% upside potential, projected 50% EBITDA and 30% net profit growth for 2025.
- Tofaş – BUY recommendation, 86% upside potential, benefiting from regulatory developments and potential new investments.
- Tüpraş & Aygaz – Stronger position due to European growth-driven oil demand and refinery supply constraints.
- Otokar – Positioned to benefit from defense sector expansion.
- Yapı Kredi Bank – Expected to gain from the interest rate cut cycle.
- Türk Traktör – Market leader poised for recovery amid agriculture and food inflation policies.
- Emlak GYO – Weight increased from 9% to 11%, benefiting from the interest rate cut cycle.
Reduced Holdings
- TSKB – Weight reduced from 8% to 6% despite positive Q1 expectations.
- Turkcell (TCELL) – Weight lowered from 10% to 8% due to TOGG-related losses and 5G tender uncertainties.
- TAV Airports – Trimmed from 8% to 7% despite strong 17% EBITDA growth expectations for 2025, as increased depreciation and financing costs may limit net profit gains.
Conclusion: A New European Order?
While Trump’s policies may not intentionally unite Europe, they have accelerated a shift toward defense self-sufficiency and economic realignment. With increasing European infrastructure investment and military spending, Turkey stands to benefit as a key trade and defense partner. Meanwhile, investors are repositioning portfolios to capitalize on Europe’s strengthening economic outlook in contrast to growing U.S. uncertainties.