By Eugenia Mykuliak
You’re steering through a financial landscape shaped by global tensions, evolving regulations, and unpredictable markets. It is not enough to brace for impact. You need to adapt and find opportunity amid disruption. Eugenia Mykuliak explores how European funds can meet 2025’s turbulence head on and emerge more resilient than ever.
As the world embraces rapid technological advancement, the accelerating pace of globalization has resulted in a deeper interconnection of the global economy over the past few decades. Now, any major economic turmoil can significantly affect financial markets’ sustainability and trigger a “domino effect” across national economies. Even localized disruptions could have long-lasting repercussions, create volatility, and interfere with the stability of capital flows.
Given this context, the European market remains vulnerable to a wide array of external factors, including U.S. tariff policies, geopolitical tensions in the Middle East, shifts in monetary strategies, and ongoing regulatory revisions in particular. The regulatory burden for asset managers is not just red tape — it directly impacts how portfolios are structured and capital is allocated.
As such, we should take a closer look at factors that influence European funds now, how developing regulations leave their mark, and what strategies fund managers can take to overcome these complexities.
Core factors impacting the European market dynamics
Among the key factors, the new U.S. tariff policy initiated by the White House presents notable difficulties for both global trade dynamics and trade relations between the USA and Europe. According to the U.S. Trade Representative, the total value of U.S. goods trade with the European Union in 2024 is estimated at $975.9 billion, and U.S. goods imported from the EU totalled $605.8 billion, which highlights an interconnection of two economies.
However, after the imposition of the 20% tariffs on imports from the EU, this positive dynamic could be severely disrupted, especially since the European Commission is considering 25% reciprocal tariffs on a range of goods imported from the U.S. As a result, I believe we can expect that such increasing trade tensions could affect investors’ sentiment toward European assets and force funds to take a defensive stance, prioritizing capital preservation.
At the same time, funds are also impacted by the instability of energy prices across the continent. Since today, such factors as tensions in the Middle East involving key oil-producing countries, Donald Trump’s “drill, baby, drill” agenda, and his pressure on the EU energy sector have a major effect on prices, much will depend on how the situation evolves.
Obviously, its worsening will lead to lower energy prices that could make funds shift toward sectors that are less energy-sensitive, such as consumer discretionary. Whereas a more favourable outcome could result in higher energy prices, causing asset managers to allocate more investments to the energy sector, expecting higher returns.
Navigating regulatory terrain
While all the factors we covered above pose their challenges, understanding the changing regulatory trends is also imperative if fund managers are to properly manage risks and adapt their investing strategies.
The regulatory landscape in Europe puts significant pressure on businesses across various sectors which, in turn, force fund managers to reassess their strategies and restructure portfolios.
One key aspect — the ESG criteria and its disclosures, the Corporate Sustainability Reporting Directive (CSRD), in particular, — sets reporting standards for businesses regarding their impact on climate change. This results in the rising risk of non-compliance penalties and increased reporting and logistics costs for SMEs.
In this regard, sustainability compliance is a headache for European businesses, adding extra layers of due diligence for fund managers as they need to align with evolving ESG standards. Eventually, this could trigger asset managers to switch the focus to big, ESG-compliant corporations, leaving behind resource-deprived SMEs.
However, the European Commission has recently announced that 80% of companies are planned to be exempted from CSRD, marking a positive shift in the regulatory framework. If this happens, it could ease the compliance burden for businesses, opening the door for asset managers to explore new investment directions and focus on returns’ optimization.
But what if regulators continue tightening the screws on European business while other factors worsen? In that case, fund managers will need to adopt more specific strategies to navigate both macro and microeconomic shifts.
How can European fund managers adapt their investment strategies?
In order to tackle all challenges mentioned above, European fund managers should be more targeted in their approaches. The way I see it, some tactics may include using currency hedging to protect from exchange rate volatility, increasing exposure to the defence sector, and reallocating investments into growth and value stocks based on their performance.
Compared to the UK and the U.S., Europe takes a strong lead in FX hedging, where 91% of fund managers hedge their currency risk. This strategy helps to improve portfolios’ stability, let European funds to better cope with currency volatility, and enhance long-term returns.
Additionally, recent data shows that at the end of 2024, European asset managers kept 1,1% of their portfolios in aerospace and defence sectors — an uptick from 0,7% two years earlier. This means that the defence sector is viewed as one that helps fund managers protect their portfolios from growing risks.
Ultimately, changes in monetary policy and revisions of the interest rate affect growth & value stocks, making funds to balance. For instance, in the current climate, growth stocks have underperformed, with an 8% YoY decline, while value stocks have outperformed with a 5% YoY increase. In this scenario, asset managers could move their allocations to value stocks, which are considered more resilient during economic uncertainties, to safeguard returns.
What to expect in 2025?
Overall, it is safe to say that 2025 will be a challenging year for the European economy. However, that does not mean that European funds these days are at a deadlock.
There are some factors that present opportunities for the Eurozone. One of them is ECB’s accommodative monetary policy — especially when taking recent rate cuts into account. Combined with strategic risk management, this environment could help asset managers to capitalize despite ongoing uncertainties.
The primary tasks for European funds now are to effectively handle the challenges posed by global economic turbulence, find ways to mitigate geopolitical risks, and keep an eye on regulatory framework evolution.
About the Author
Eugenia Mykuliak is a Founder & Executive Director of B2PRIME Group, a global financial services provider for institutional and professional clients. Eugenia has an extensive background in financial markets, with over 10 years of experience in the industry. At B2PRIME Group, she has played a pivotal role in shaping the company’s strategic direction, operational excellence, and regulatory framework. Under her leadership, B2PRIME has secured multiple financial licenses and expanded into key global markets.
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