The Takeaway
European and emerging market equities outpaced the US in H1 2025, driven by low valuations, declining rates, fiscal expansion in Germany, and a growing focus on defense. This marks a notable shift, positioning Europe and Emerging Markets as a viable performance and diversification engines for global portfolios.
Investor sentiment toward defense is evolving. Heightened geopolitical risk and Europe’s push for military self-reliance are reshaping frameworks, with increasing acceptance of defense-related assets in sustainable investment strategies.
Nordic Markets face pressure despite IPO Momentum. Novo Nordisk’s recent struggles — tied to trial data, tariffs, and Medicare pressure — weighed heavily on Nordic performance, prompting a rotation away from healthcare. Meanwhile, Sweden leads in IPO activity, demonstrating underlying regional dynamism despite headline setbacks.
Novo Nordisk suffered in the first half of 2025, but there were lots of bright spots, which drove the great performance. Within the broad Morningstar Nordic All Cap Target Market Exposure Index, which covers 99% of market capitalization, financial services and industrials have been the leading contributors. Between Morningstar’s index reconstitutions in December 2024 and June 2025, the region has witnessed several market-cap changes driven by acquisitions and new Swedish listings.

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