UBS Global Research sees emerging investment opportunities in Europe, driven by Germany’s significant shift in fiscal policy.
The newly proposed government spending measures, particularly a €500 billion infrastructure package, signal a departure from Germany’s traditionally conservative budget stance.
UBS analysts believe this move could bolster economic growth, increase market confidence, and create a more favorable environment for investors across the Eurozone.
In response to the spending announcement, the German DAX index surged 3.4%, followed by another 1% increase, bringing its total year-to-date gain to 17%.
Market enthusiasm has also been reflected in bond yields, with the yield on 10-year German Bunds climbing from 2.4% to 2.86%, marking the fastest rise since 1990.

UBS analysts suggest that while the market may have overestimated the risks associated with increased government borrowing, Germany’s strong fiscal position supports its AAA credit rating.
Even with the proposed spending, UBS projects that Germany’s debt-to-GDP ratio would remain in the mid-60% range by 2030.
For equity investors, UBS highlights opportunities in cyclical and defense-related sectors, which led the DAX rally.
Despite recent gains, European stocks remain relatively undervalued compared to global markets.
UBS recommends targeted investment strategies focused on the EMU industrial sector, small- and mid-cap stocks, and structured strategies tied to the DAX.

Fixed income investors may find opportunities in medium-tenor quality corporate bonds, as rising yields present attractive entry points.
UBS also notes that the shift in Europe’s fiscal stance could strengthen the euro over time, though near-term risks remain, particularly with potential tariff escalations from the United States.
While uncertainty persists, UBS sees Germany’s fiscal expansion as a catalyst for renewed investor interest in Europe.
A selective approach—focusing on sectors poised to benefit from increased government spending—could offer compelling investment opportunities in the evolving European market.