Market News

ONDON, July 25 (Reuters) - Europe's smaller companies are emerging as a popular vehicle for investors to help insulate portfolios against both tariffs and a stronger euro, as cheaper credit and the prospect of more government spending bolster confidence in the economic outlook.

The domestic-leaning bias of smaller companies makes them less vulnerable to levies on cross-border goods and they are also less exposed to currency swings when the euro strengthens, making euro-zone exports more expensive abroad.

The Reuters Tariff Watch newsletter is your daily guide to the latest global trade and tariff news. Sign up here.

Advertisement · Scroll to continue
Report This Ad

The STOXX Europe small- (.SCXP) and mid-cap (.MCXP) indexes have risen 9% and 11% this year, respectively, beating the STOXX Europe large-cap index (.LCXP), which has risen just 7%.

U.S. President Donald Trump has bagged a handful of trade agreements with global partners since unveiling sweeping global levies in April, the most significant of which was a deal with Japan this week.

But there is still no deal with the European Union and an August 1 deadline is just days away. Speculation swirled on Wednesday of a 15% rate for the EU, but was quickly dismissed by the White House.
"One of the benefits of small-caps is that they are a bit more insulated from a geographical standpoint," said Ingmar Schaefer, a portfolio manager at Van Lanschot Kempen.

"Whatever happens with U.S. tariffs, a local company will not be impacted by as much as a global player in the same field."
An analysis by Goldman Sachs found that companies in the STOXX large-cap index generate about 35% of their revenue in Europe, compared to 60% of revenue generated by companies in the small- and mid-cap indexes.